For California personal income tax purposes, an employee with $45,000 of employer-paid group term life insurance coverage must:

Why B is correct

California conforms to IRC §79, so the same $50,000 threshold applies for state personal income tax purposes. Because the employee's coverage of $45,000 is below $50,000, no amount is includable in income for either federal or California purposes. The value of group term life coverage up to the statutory limit is treated as a nontaxable fringe benefit under California conformity. Coverage above the limit would be taxed under the same uniform premium rates used federally, and the employee would report the excess on both returns.

Why the other options are wrong

• A) There is no 50% rule for group term life; the entire $45,000 of coverage is excluded because it is below the statutory limit. No partial inclusion is required. The full amount is free.
• C) The full value is not taxable; California follows the federal $50,000 exclusion, and $45,000 of coverage is below that threshold. The threshold protects the whole amount. Nothing is included in income.
• D) Health insurance premiums have no effect on the group term life exclusion; the $50,000 threshold applies to the life coverage independently. The two benefits are unrelated. One does not affect the other.

Memory hook

Under $50k, group term is free money in California too.