Group Term Life Insurance

The premium on the first $50,000 of coverage is not taxable; the value of coverage above $50,000 is taxable — Under IRC §79, an employer's payments for group term life insurance are excluded from the employee's gross income for the first $50,000 of coverage. The economic benefit of coverage above $50,000 is taxable to the employee, generally calculated using IRS Table I rates and reduced by any amounts the employee contributed. The exclusion applies only to group term life that meets IRC §79 requirements. Thus the coverage is not wholly taxable or wholly tax-free; the $50,000 threshold is the dividing line.

National insurance concept

The cost of the first $50,000 of coverage is excluded from income; the cost of coverage above $50,000 is taxable to the employee — Under IRC Section 79, the cost of the first $50,000 of employer-provided group term life insurance is excluded from the employee's gross income. The imputed cost of coverage in excess of $50,000 must be included in the employee's taxable income, using a table of rates issued by the IRS. The death benefit of the group policy remains income tax free under IRC Section 101(a). This $50,000 threshold is a frequently tested tax fact. The rules apply to group term life insurance paid for by the employer; if the employee pays for the excess coverage, the employee's own contributions reduce the taxable amount.

National insurance concept