Quiz: Taxation of Group Life Insurance

Tom is a 45-year-old senior accountant employed by ABC, Inc. Under ABC's employer-pay-all group life plan, Tom's coverage is $120,000. What amount of that coverage is taxable to Tom? A. $120,000 B. $0 C. $70,000 D. $50,000

C. $70,000 The cost of the first $50,000 of coverage is tax exempt for employees. Because Tom has $120,000 of coverage, the premiums for $70,000 ($120,000 - $50,000) are taxable to him.

What part of employer-funded group life insurance coverage-if any-is tax exempt for employees? A. the full amount of coverage B. the value of the first $25,000 of coverage C. the value of the first $50,000 of coverage D. $0

C. the value of the first $50,000 of coverage The IRS Table I value of the first $50,000 of coverage is tax exempt for employees. In other words, the imputed value for the first $50,000 of coverage is not taxable to the employee. But the value of any amount over that level of coverage is taxable.

Which statement correctly describes the income tax treatment of employer-funded group life insurance coverage on a covered employee? A. The value of coverage exceeding $50,000 is taxable to the employee; below that, it is tax free. B. As long as the plan is nondiscriminatory, 100 percent of employer-paid group life coverage is tax free to the employees. C. The value of the first $50,000 in coverage is taxable to the employee; above that, it is tax free. D. The value of coverage exceeding the employee's adjusted gross income is taxable to the employee; below that, it is tax free.

A. The value of coverage exceeding $50,000 is taxable to the employee; below that, it is tax free. The value of the first $50,000 of employer-paid group life coverage is tax free for employees. Coverage exceeding $50,000 is taxable.

Any after-tax contributions Tom makes toward the cost of his group life insurance coverage are treated in which of the following ways? A. They are subtracted from his taxable income. B. They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis. C. They are added to the imputed income of the employer's contributions on a dollar-for-dollar basis. D. They are added to his taxable income.

B. They are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis. Any after-tax contributions Tom makes toward the cost of his group life coverage are subtracted from the imputed income of the employer's contributions on a dollar-for-dollar basis.