Under federal tax laws, what is the tax treatment for an employer providing \$50,000 of group-term life insurance coverage to an employee?

• A. The first \$50,000 of coverage is excluded from the employee's taxable income.
• B. The employer must pay tax on the \$50,000 coverage, not the employee.
• C. The entire \$50,000 of coverage is included in the employee's taxable income.
• D. Only the amount above \$25,000 is excluded from the employee's taxable income.

Answer: (A)

Verified step by step guidance

1. Understand the concept of group-term life insurance coverage: Group-term life insurance is a type of life insurance provided by an employer to its employees. Federal tax laws govern how this benefit is treated for tax purposes.
2. Review the tax exclusion rule: Under federal tax laws, the first \$50,000 of group-term life insurance coverage provided by an employer is excluded from the employee's taxable income. This means the employee does not pay taxes on this portion of the benefit.
3. Analyze the employer's tax responsibility: The employer does not pay tax on the \$50,000 coverage provided to the employee. The tax treatment is focused on the employee's taxable income exclusion.
4. Evaluate the incorrect options: The entire \$50,000 of coverage is not included in the employee's taxable income, and the exclusion does not apply only to amounts above \$25,000. These statements contradict the federal tax laws.
5. Conclude the correct tax treatment: The correct answer is that the first \$50,000 of group-term life insurance coverage is excluded from the employee's taxable income, aligning with federal tax regulations.