Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
An employer provides group term life insurance to employees and pays the entire premium. Under IRC §79, how is this benefit taxed to the employee?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under IRC §79, an employer's payments for group term life insurance are excluded from the employee's gross income for the first $50,000 of coverage. The economic benefit of coverage above $50,000 is taxable to the employee, generally calculated using IRS Table I rates and reduced by any amounts the employee contributed. The exclusion applies only to group term life that meets IRC §79 requirements. Thus the coverage is not wholly taxable or wholly tax-free; the $50,000 threshold is the dividing line.
Why the other options are wrong
- B) The entire premium is taxable only if the plan fails §79 requirements; under a qualifying plan the first $50,000 is excluded.
- C) The benefit is not entirely tax-free; coverage above $50,000 creates taxable income.
- D) The death benefit's tax treatment is governed by §101, but the premium and economic benefit question is the §79 issue.
Memory hook
First $50,000 of group term = free lunch. Above that line, the IRS takes a bite.