Are Life Insurance Premiums Taxable?

Life insurance premiums for policies provided by an employer are exempt from tax for the first $50,000 of death benefit provided. Death benefit amounts in excess of $50,000 result in imputed income to the employee and are subject to income tax.

Benefits

The tax on the policy premium costs less than the premium, saving you money. Your real cost is your imputed income times your marginal tax rate.

Effects

Your employer is required to include imputed income from taxable death benefits on your W-2. You do not generally need to calculate the imputed income yourself.

Misconceptions

The actual cost of the insurance does not effect the amount of income included on your W-2, the cost is based upon IRS tables.

Considerations

The Internal Revenue Service (IRS) does not consider the first $2,000 of death benefit provided to an employee's spouse or dependent as income. IRS Notice 89-110 details exceptions to this exemption.

Expert Insight

The IRS does not subject polices paid for by employees to imputed income as long as each employee pays the actual cost of their benefit.

References

• IRS