Compliance Q&A: Group Term Life Insurance Taxation

Group-term life insurance is a popular benefit offered by employers, and most employees choose to participate when provided the opportunity. However, despite the prevalence of these policies, plan sponsors and participants often do not have a good handle on the applicable tax issues. Specifically, up to $50,000 of employer-provided group-term life insurance coverage may be excluded from income of the employee. However, multiple factors impact whether the exclusion applies, including whether the group-term life insurance plan is discriminatory, how the premiums are paid, and whether or not the plan is considered “carried” by the employer. If not eligible for exclusion, the coverage must be imputed income to the employee.