Under Internal Revenue Code Section 79, an employee who is covered by an employer-paid group term life insurance policy must generally include in gross income the value of coverage:

Why A is correct

Under IRC Section 79, the cost of the first $50,000 of employer-provided group term life insurance is excluded from the employee's gross income. The cost of coverage over $50,000 is taxable to the employee, calculated under the IRS's uniform premium table (Table I). This favorable tax treatment is one reason group term life is a common employee benefit.

Why the other options are wrong

• B) The threshold is $50,000, not $5,000; $5,000 relates to the income tax exclusion of an employer-paid death benefit under a qualified plan.
• C) The exclusion is not tied to the employee's salary; it is a flat $50,000 face-amount threshold.
• D) The taxability rule applies to employer-paid coverage; employee-paid contributions generally are not taxable to the employee.

Memory hook

$50K of group term = tax-free perk. Every dollar of coverage beyond that is taxable to the employee.

Why A is correct

Under IRC §79, the cost of employer-provided group term life insurance up to $50,000 of face amount is excluded from the employee's gross income. The cost of coverage over $50,000 is taxable to the employee, computed under a uniform premium table published by the IRS. This exclusion applies only to group term coverage, not to group whole life or other permanent products, whose employer-paid cost is generally taxable to the employee. The $50,000 threshold is a frequently tested number in life insurance taxation and a key consideration when designing executive group life programs.

Why the other options are wrong

• B) $10,000 is an outdated figure from earlier law and is not the current exclusion amount under IRC §79. The modern threshold was established at $50,000, and employer-paid coverage above that amount is taxable income to the employee.
• C) $100,000 doubles the actual threshold and is not the statutory exclusion amount for group term life. Only the first $50,000 of employer-paid coverage is excluded, with the excess reported on the employee’s tax return.
• D) $250,000 is not the statutory exclusion amount and would overstate the tax-free limit considerably. The correct benchmark under IRC §79 is $50,000 of employer-paid coverage, so $250,000 would tax far too much of the benefit.

Memory hook

First 50K of group term is free; the part above that shows up on the W-2.