An employer pays the entire premium for a $75,000 group term life policy on an employee. For federal income tax purposes, the employee:

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.