Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An employer pays the entire premium for a $75,000 group term life policy on an employee. Under IRC Section 79, the employee's taxable income includes:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under IRC Section 79, the cost of the first $50,000 of employer-paid group term life coverage is excluded from the employee's gross income. The imputed cost of coverage above $50,000 is includible in the employee's income, calculated from IRS tables. The death benefit itself remains income-tax-free to the beneficiary in most cases.
Why the other options are wrong
- B) The employer's premium is not fully taxable to the employee; only the cost of coverage above the $50,000 exclusion is included.
- C) Coverage above $50,000 is partially taxable, so it is not accurate that all group term coverage is tax-free.
- D) The death benefit is payable to the beneficiary at death and is generally tax-free; it is not income to the employee.
Memory hook
$50,000 of employer group term = free lunch. Above that, the employee pays imputed income tax on the extra.