Taxation of Group Life Insurance

Question 1

Premiums paid by the Employer and the Employee

Answer 1

Group Term Life premiums paid by an employer are tax deductible to the business as an ordinary and necessary business expense. Any employee paid premiums are not eligible for a tax deduction.

Premiums paid by the employer in connection with group life insurance do not constitute taxable income to the employee, unless the death benefit paid for by the employer exceeds $50,000.

All employer-paid premiums for amounts above $50,000 are reported as taxable income to the employee.

As long as the insurance death benefit is not payable to the employer when an employee dies, the premiums paid for the life insurance are deductible to the business.

Question 2

Death Benefit Proceeds

Answer 2

Death benefit proceeds from a group life insurance plan to an employee’s named beneficiary are received income tax free.