Is Group Term Life Taxable?

The taxable portion of Group Term Life Insurance refers to the portion of the insurance coverage that is subject to federal income tax.

Under the Internal Revenue Service (IRS) rules, the cost of group term life insurance coverage provided by an employer is generally tax-free up to a certain limit. For tax year 2023, the limit is $50,000 of coverage or the employee’s actual coverage amount, whichever is less.

If an employer provides Group Term Life Insurance coverage that exceeds the IRS limit of $50,000, the excess amount is considered taxable income to the employee. The taxable amount is based on the IRS premium table rates and is calculated according to the employee’s age and the amount of coverage that exceeds the limit, you can find that information in the IRS publication 15-B, Employer’s Tax Guide to Fringe Benefits https://www.irs.gov/pub/irs-pdf/p15b.pdf

It’s important to note that if an employer pays for the Group Term Life Insurance coverage on behalf of the employee, the entire cost of the coverage is considered taxable income to the employee. However, if the employee pays for the coverage through payroll deductions, only the portion of the coverage that exceeds the IRS limit is taxable income.

In summary, the taxable portion of Group Term Life Insurance is the portion of the insurance coverage that exceeds the IRS limit of $50,000 or the employee’s actual coverage amount, whichever is less.