Is life insurance provided by an employer to staff as a benefit taxable?

• A. The premiums for the first $50,000 of coverage are not taxable; amounts above are taxable
• B. All life insurance premiums are fully taxable
• C. All life insurance is tax-exempt
• D. Premiums above $50,000 are tax-deductible for the employer only

Answer: (A)

When an employer provides group term life insurance, the tax treatment hinges on coverage amount. The first $50,000 of coverage is not taxed as income to the employee. Any coverage above $50,000 creates imputed income—the value of that excess coverage is added to the employee’s wages and taxed as ordinary income. This is why the correct choice says the premiums for the first $50,000 are not taxable while amounts above are taxable.

The other statements aren’t accurate for describing how the benefit is taxed to the employee: not all premiums are fully taxable, not all life insurance is tax-exempt, and while the employer may deduct premiums as a business expense, that doesn’t change the employee’s tax treatment of the excess coverage.