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Tax options for group term life insurance

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. We can’t afford to give employees raises this year. Can we provide group life insurance, which would be cheaper, instead? R.L.S., Tulsa, Okla.

Yes. In fact, employees will benefit from a tax break for employer-paid group life insurance. The first $50,000 of coverage provided by the employer is tax-free. Coverage above the $50,000 threshold is taxable based on the age of the employee on the last day of the year. If an employee contributes to the premium payments through payroll deductions, this reduces the taxable amount. Use the IRS-approved table for calculating the tax.

Tip: You might include group-term life insurance in a cafeteria plan allowing employees to choose the tax-free benefits they prefer.

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