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. For federal income tax purposes, the employee:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under Internal Revenue Code Section 79, the cost of the first $50,000 of employer-provided group term life insurance is excluded from the employee's gross income. For coverage in excess of $50,000, the employee must include in income the cost of that excess coverage, determined using a table-based uniform cost per $1,000 of coverage — not the full premium. The imputed amount is relatively small and is reported to the employee. This tax treatment makes employer-paid group term life insurance an efficient fringe benefit up to the $50,000 threshold.
Why the other options are wrong
- B) Only the first $50,000 of employer-paid group term life coverage is tax-exempt. The cost of coverage in excess of $50,000 is taxable to the employee under Internal Revenue Code Section 79.
- C) The employee is not taxed on the 5,000 face amount. Only the cost of the coverage above $50,000 is imputed as income, computed on a table basis per ,000 of coverage.
- D) The taxable amount is based on a uniform table cost of the excess coverage. It is not based on the entire premium that the employer paid for the group term coverage.
Memory hook
Group term: first 50K is tax-free candy, everything above is table-cost taxable income.