Question

Turner, Inc., provides group term life insurance to the officers of the corporation only. Janet, a vice-president, received 450,000 of coverage for the year at a cost to Turner, Inc. of 5,600. The Uniform Premiums (based on Janet's age) are 15 a year for 1,000 protection. How much of this must Janet include in gross income this year?

1) 0
2) 2,700
3) 5,600
4) 6,000
5) None of these

Answer 1

Janet must include $6,000 in her gross income, which is calculated as the Uniform Premium rate for the taxable benefit of the coverage over $50,000 at $15 per $1,000 of protection annually.

Step-by-step explanation:

The question relates to how much of the group term life insurance benefit must be included in gross income for tax purposes. Based on the Uniform Premiums of $15 per year per $1,000 of protection, we need to first determine the amount of coverage that is tax-free. The IRS provides a table with the cost per $1,000 of protection for group-term life insurance that should be used for tax calculations. Coverage up to $50,000 is generally excluded from an employee's income. Excess coverage over $50,000 is taxable income to the employee at the uniform premium rates provided by the IRS.

To calculate the amount that Janet must include in her gross income, the value of the first $50,000 of coverage is excluded. Therefore, we calculate the taxable benefit on $400,000 of coverage ($450,000 total coverage minus the $50,000 exclusion). The calculation is as follows:

1. Calculate the monthly cost: ($400,000 / $1,000) × $15 = $6,000 per year.
2. Subtract any amount that Janet has paid towards the cost ($0 in this case).
3. The resulting amount of $6,000 is what Janet must include in her gross income.

So, the correct answer is 4) $6,000.