Question

If the employer provides all employees with group term life insurance equal to twice the employee's annual salary, an employee with a salary of $50,000 has no gross income from the life insurance protection provided by the employer?

A) True - The employee with a $50,000 salary has no gross income from the life insurance.
B) False - The employee with a $50,000 salary has gross income from the life insurance.
C) True - The gross income depends on the employee's age.
D) False - Gross income is determined solely by the employer's contribution.

Answer 1

An employee with a $50,000 salary provided with $100,000 of group term life insurance by the employer has taxable gross income from the portion of life insurance coverage that exceeds $50,000, as per IRS regulations.

Step-by-step explanation:

To answer whether an employee with a $50,000 salary has gross income from the life insurance provided by the employer: according to IRS regulations on employer-provided group-term life insurance, the first $50,000 of coverage is excluded from taxable income.

Therefore, if an employer provides all employees with group term life insurance equal to twice the employee's annual salary, an employee with a salary of $50,000 would be provided with $100,000 in life insurance coverage.

The cost of the first $50,000 of coverage would be excluded from the employee's gross income, but the cost of the remaining $50,000 would generally be considered taxable income, unless certain exceptions apply.

In this case, the value of the coverage over $50,000 is calculated using the IRS Premium Table and must be included in the employee's gross income, subject to social security and Medicare taxes.

This value is also known as the Table I cost and is dependent on the age of the employee. Consequently, the correct answer is: B) False - The employee with a $50,000 salary has gross income from the life insurance, to the extent that the value of coverage exceeds $50,000.