Presented by Paystrubmakr.com By John Wolf and Tom Cullen CPA
Popularity and Application
Few fringe benefit plans can offer the employee so much and cost the employer so little, as group term life insurance under §79. When there is an eligible group of employees, the insurance company will issue a master group policy to the employer. Each employee receives a certificate of insurance specifying his amount of coverage. Applicable state laws will determine the eligibility of a particular group, the maximum amount of coverage permitted, and the assignment of incidents of ownership (R.R. 69-54; R.R. 72-307; R.R. 76-421; R.R. 84-130; §2042). Publication 15-B (2021), Employer’s Tax Guide to Fringe Benefits
Coverage & Premiums
The usual group policy provides pure term insurance, with an option for the employee to convert to a cash value plan when his employment is terminated. Premiums are generally paid on an annual renewable term (ART) basis, reserving to the insurance company the right to terminate the policy at the end of any policy year. Premiums may be paid entirely by the employer or maybe contributory by the employee. Most state insurance laws permit that anyone may be named as the beneficiary, except the employer.
Since group life insurance is generally issued without a medical examination, it is
of particular value to persons who would otherwise be insurable. The non-
the medical issue together with low premiums has undoubtedly contributed to its
widespread popularity. However, group term premiums do increase with age and therefore, as employees approach retirement age, the premiums can become
While §79 appears to be rather short and to the point, the ensuing regulations
are a monument to the government’s ability to make complex issues out of simple statements. Briefly, an employee must include in his taxable income each
year, an amount equal to the cost of group term life insurance provided by his
However, taxable income results only where the amount exceeds the sum of the
cost of $50,000 of protection and the employee’s contributions. Section 79(c)
provides that the cost shall be determined on the basis of uniform premiums,
computed on the basis of the five-year age bracket
Premiums for $1,000 of Group Term Life Insurance Protection
|Age:||Monthly Cost Per $1,000:|
|70 & over||$2.06|
Spouse & Dependent Insurance
Since 1989 and until further notice, the cost of up to $2,000 of group-term
life insurance provided to an employee’s spouse or dependents is excludable from income as a de minimis fringe benefit (Notice 89-110).
Note that the computation is made on a monthly basis, considering the
amount of insurance that is in force each month. The insured person’s age is determined according to their age on the last day of their taxable year. These
rates must be used regardless of the actual rates charged by the insurance
company. Fringe Benefit Rates Fiscal Year 2021
When taxable income results to the employee, the employee remains liable
for the payment of tax regardless of whether any of the incidents of
ownership had been transferred. The logic that is applied by the IRS is that
the insurance is provided by reason of the insured person’s employment and,
therefore, any income tax liability is unaffected by a transfer of ownership.
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