Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An employer pays the entire premium on $100,000 of group term life insurance for an employee. Under IRC Section 79, the amount that must be included in the employee's gross income is based on:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under IRC Section 79, the first $50,000 of employer-paid group term life insurance is excluded from the employee's gross income. The taxable amount is the cost of the coverage above $50,000, computed using IRS tables rather than the employer's actual premium. The $50,000 threshold is a high-frequency tax fact: employees are taxed only on the excess coverage, and any employee contributions toward the plan reduce the includible amount. Here, the taxable amount is based on the $50,000 of coverage that exceeds the exclusion.
Why the other options are wrong
- B) The first $50,000 of coverage is excluded by statute, so taxing the full $100,000 ignores the statutory threshold. The tax is based on IRS table rates, not on the actual premium the employer paid.
- C) The first $50,000 is the excluded portion, not the taxed portion; coverage below the limit is not included in income. The $50,000 exclusion applies before any amount is taxed, so the full $100,000 is not included.
- D) Retirement status has no effect on the Section 79 inclusion rule, which turns entirely on the $50,000 threshold. Coverage at or below $50,000 is entirely excluded from the employee's gross income.
Memory hook
Group term: first 50K is a gift, the rest is taxed. The fifty-thousand line divides free from taxable.