Life · Chapter 8 · Group Taxation
Group Premium Taxation (the $50,000 rule)
Definition
Employer-paid premiums are tax-deductible to the employer as a business expense. For the employee, the premium on the first $50,000 of employer-provided group term coverage is tax-free; the cost of coverage above $50,000 is taxable to the employee as imputed income (reported on the W-2). Employee-paid premiums are never deductible; sole proprietors/partners can't deduct premiums on their own lives (they aren't employees).
In plain English
Free coverage up to $50k is a tax-free perk. Above that, the IRS pretends you got extra paycheck and taxes you on the cost — even though you never saw the cash.
Exam tip
The employee is taxed on the COST of the excess coverage, not the face amount. And the trap answer "employee can deduct their own contributions" is always wrong.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
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