An employee receives $200,000 of EMPLOYER-PAID group term life insurance through a non-discriminatory cafeteria plan. Under IRC §79, the income-tax treatment is:

a.The entire $200,000 face amount creates imputed income to the employee each year, taxable as wages

b.All employer-paid group term coverage is fully tax-free to the employee regardless of amount

c.The premium for the first $200,000 is excluded; only premiums above that amount are imputed

d.The premium attributable to the FIRST $50,000 of group term coverage is excluded from the employee's gross income under IRC §79; the cost of coverage in excess of $50,000 is imputed to the employee using IRS Uniform Premium Table I rates (based on age), and that imputed cost is added to W-2 wages

Explanation

Under IRC §79, the cost of EMPLOYER-PROVIDED group term life insurance is excluded from the employee's gross income only up to the FIRST $50,000 of coverage. For coverage in excess of $50,000, the IRS calculates the cost using Uniform Premium Table I (an age-based monthly rate per $1,000 of excess coverage), reduces it by any after-tax employee contributions, and adds the net amount to the employee's W-2 wages as IMPUTED INCOME (subject to income tax and FICA but generally not federal unemployment tax). For a $200,000 policy, $150,000 of excess coverage generates imputed income each year based on the employee's age. Option A overstates by taxing the face amount itself. Option B ignores the $50,000 cap. Option C is reversed. This is one of the most frequently tested taxation rules.

Law Reference: IRC §79 (group term life imputed income / Table I)

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An employee receives $200,000 of EMPLOYER-PAID group term life insurance through a non-discriminatory cafeteria plan. Under IRC §79, the income-tax treatment is:

Explanation

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