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Group Term Life Insurance: FAQ’s

Many employers provide employees with employer-paid group-term life insurance benefits or arrange for employees to purchase group-term life insurance benefits. Internal Revenue Code (Code) Section 79 includes the tax rules for employer-provided group-term life insurance.

Code Section 79 provides that an employee may exclude up to $50,000 of employer-provided group-term life insurance coverage from his or her taxable income. This tax exclusion applies only to insurance on the life of the employee. It does not apply to insurance on the life of the employee’s spouse or dependent or other individual.

Employers may provide employees with group-term life insurance coverage in excess of $50,000, but the excess cost of coverage is taxable to the employee. This excess cost is taxable even if employees pay the insurance premiums for the coverage.

Tax Rules

Coverage in Excess of $50,000

  • Employers must include the excess cost of group-term life insurance in employee wages for tax purposes.
  • The amount is also subject to Social Security and Medicare taxes (FICA taxes).
  • Employers may withhold federal income tax on the excess cost.

Commonly Asked Questions regarding Group Term Life Insurance

Must the cost of employer-provided group-term life insurance be included in an employee’s gross income?

Pursuant to Code Section 79, an employee may exclude up to $50,000 of employer-provided group-term life insurance from his or her income. This tax exclusion applies only to insurance on the life of the employee. It does not apply to insurance on the life of the employee’s spouse or dependent or other individual.

In addition, the employer may generally deduct the premiums it pays for the coverage as an ordinary and necessary business expense, so long as the employer is neither directly nor indirectly the beneficiary under the policy.

May the employer provide group term life insurance for its employees in excess of $50,000?

Yes. However, the “cost” of the coverage in excess of $50,000 must be included in the employee’s gross income. “Cost” as used here does not refer to the premium paid by the employer but to the cost determined under the Uniform Premium Table contained in IRS regulations. The “cost” of the coverage added to an employee’s gross income is commonly referred to as “imputed income.”

Group Term Life Insurance Links and Resources

Treasury Regulation Section 1.79-3 (Uniform Premium Table)

For More Information

For more information on how to educate your employees about life insurance, or help understanding the different types of life insurance, contact Next Generation Payroll today. You can also check out our resources on fully funded insurance, self-funded insurance, and even level funding insurance options. Although virtual health care is on the rise, that doesn’t change the fact that being fully insured can help lessen the cost of medical services. Reach out to Next Generation Payroll to learn more about how we can make fully funded insurance vs self funded easier for you to access and understand.

Next Generation Payroll is a local black-owned business in Dallas. We are one of the top payroll processing companies for small businesses based in Dallas, TX. Our services are centered around risk management, operational efficiency, and strategies that improve market penetration by helping you generate new business leads. We build up small businesses making sure your business is solvent, and it operates efficiently in all economic climates.

At Next Generation Payroll, we are not interested in fulfilling quotas and meeting monthly sales goals. We focus on goals that are centered around fulfilling our client’s aspirations. Our top priority is to simply provide a strategy to help your business reach full potential. For more information, feel free to reach out to us at 214-396-2200. Stay in touch with us by signing up below for our monthly updates and newsletters

 



Shardae Patterson

Shardae Patterson

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