Group term life insurance taxability

When life insurance is provided by your employer as part of your compensation plan, your employer will pay your premium but you will need to pay taxes on those payments as income for coverage over $50,000. This means that if your policy covers $50,000 or less, you will not pay any taxes on it. However, if your policy covers more than $50,000, then you will pay taxes as imputed income only on the percentage of coverage that is more than $50,000.

Example: Your life insurance policy covers $100,000. The premium paid by your employer is $100 per month. You do not need to pay any taxes on the first $50,000 worth of coverage, which happens to be 50% of your premium cost. Since you are only required to pay taxes on coverage over $50,000, you only need to pay taxes on 50% of your premium, which is $50. On your paycheck, you will see an additional $50 on your gross income so that taxes can be applied.

This is how this will appear on your paystub:

Note: If an employee is contributing to a life insurance policy, contributions will default to post-tax deductions unless otherwise specified. Learn more from the IRS.



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