Question

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age), the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, he must include in his 2019 gross income which of the following amounts?

a) $1,350.

b) $2,400.

c) $3,000.

d) $3,750.

e) None of these.

Answer 1

Gordon must include $2,400 in his gross income, which is calculated by applying the IRS Uniform Premium Table rate to the taxable amount of his employer-provided group term life insurance coverage over $50,000.

Step-by-step explanation:

To determine the gross income that Gordon must include due to employer-provided group term life insurance, we apply the IRS Uniform Premium Table rates to the amount of coverage over $50,000, since the first $50,000 of employer-provided life insurance coverage is generally excluded from taxable income under the Internal Revenue Code.

The coverage provided to Gordon is $250,000, so we calculate the taxable amount on $250,000 - $50,000 = $200,000. Using the IRS table rate of $12 per year for each $1,000 of protection, the calculation is (200 × $12) = $2,400 which is the amount to be included in Gordon's gross income.

The cost of an individual policy ($15 per year for $1,000 of protection) is irrelevant in this context, as the IRS table rates are used regardless of the actual cost of an individual policy.

Therefore, the correct answer to the question is:

• b) $2,400.