8783 / How is it determined whether the cost of group-term life insurance provided under a Section 79 plan exceeds the $50,000 excludable limit?

The cost of up to $50,000 of group-term life insurance coverage generally is tax-exempt under IRC Section 79 (see Q 8782). The cost of coverage in excess of $50,000 is taxable to the employee in most situations (see Q 8784 for a discussion of the exceptions).

In calculating the cost of coverage, an employee who has more than one employer must combine all group-term coverage and is entitled to exclude only $50,000 of the combined coverage. If an employee contributes toward the cost of the insurance, all of the employee’s contribution for coverage will be subtracted from the amount that would otherwise be taxable.¹ The employee cannot carry over any unused portion of his or her contributions from year to year.

The taxable cost of coverage in excess of $50,000 must be calculated on a monthly basis. The steps are as follows:

(1)  Determine the total amount of group-term life insurance coverage for the employee in each calendar month of the employee’s taxable year, and if a change occurs during any month, take the average at the beginning and end of the month;

(2)  Subtract $50,000 from each month’s coverage;

(3)  Apply the appropriate rate from the applicable tables of monthly premium rates (reproduced below) to the balance, if any, for each month;

(4)  Subtract total employee contributions for the year, if any, from the sum of the monthly costs.²

The cost is determined on the basis of the life insurance protection provided to an employee during the employee’s tax year, without regard to when the premiums are paid by an employer. The rates in the table provided immediately below should be used to compute the cost of excess group-term life insurance coverage.³

Uniform Premiums for $1,000 of Group-Term Life Insurance Protection* Rates Applicable to Cost of Group-Term Life Insurance Provided After June 30, 1999
5-Year Age Bracket	Cost per $1,000 of Protection for One-Month Period
Under 25	$0.05
25 to 29	.06
30 to 34	.08
35 to 39	.09
40 to 44	.10
45 to 49	.15
50 to 54	.23
55 to 59	.43
60 to 64	.66
65 to 69	1.27
70 and above	2.06
*In using the above table, the age of the employee is the employee’s attained age on the last day of the employee’s taxable year.