Regarding employer-paid premiums, which statement is true about premiums above $50,000?

Regarding employer-paid premiums, which statement is true about premiums above $50,000?

• A. They are tax deductible to the employee.
• B. They are not subject to tax reporting.
• C. The employer must pay additional taxes on the above-$50,000 amount.
• D. All employer-paid premiums for amounts above $50,000 are reported as taxable income to the employee.

Answer: (D)

The key idea is how employer-paid life insurance premiums are taxed when coverage exceeds $50,000. For group term life insurance, the cost of coverage up to $50,000 is not included in the employee’s taxable income. But when coverage goes above that threshold, the portion above $50,000 is treated as imputed income for the employee. That imputed amount is added to the employee’s wages and is subject to income tax and payroll taxes, and it must be reported on the employee’s W-2. So, the statement that all employer-paid premiums for amounts above $50,000 are taxable income to the employee and must be reported is the correct one. The other options don’t fit because they misstate tax treatment: the excess premium isn’t a deductible benefit for the employee, it is taxable and reportable, and while employers do handle payroll taxes on wages, the emphasis here is on the employee’s taxable income and reporting.

The key idea is how employer-paid life insurance premiums are taxed when coverage exceeds $50,000. For group term life insurance, the cost of coverage up to $50,000 is not included in the employee’s taxable income. But when coverage goes above that threshold, the portion above $50,000 is treated as imputed income for the employee. That imputed amount is added to the employee’s wages and is subject to income tax and payroll taxes, and it must be reported on the employee’s W-2.

So, the statement that all employer-paid premiums for amounts above $50,000 are taxable income to the employee and must be reported is the correct one. The other options don’t fit because they misstate tax treatment: the excess premium isn’t a deductible benefit for the employee, it is taxable and reportable, and while employers do handle payroll taxes on wages, the emphasis here is on the employee’s taxable income and reporting.