Question

An employer provides each of its employees with life insurance protection equal to four times the employee's annual salary. Erin, who is 31, has an annual salary of $45,000. Is Erin required to recognize income even though she is still alive at the end of the year and thus nothing has been collected on the life insurance policy?

Click here to access Exhibit 4.3.

Round answers to the nearest cent.

If the coverage exceeds $____, the employee must include in gross income the_____ on the protection above this amount. Therefore, Erin includes $______.

Answer 1

IRC section 79 provides that amount paid by the employer for a group term life insurance coverage of employees for the first $50,000 amount is excluded from income of the employee .

Cost of covetage in excess of $50,000 must be included in income.The imputed cost of coverage in excess of $50,000 to be determined using IRS premium table.

In this case, the Insurance coverage=4*45,000=$180,000

Exemption =$50,000 coverage

Cost of (18000-50000)=$130,000 coverage should be included in income

Age of Erin=31

As per IRS table (Table 2-2. Cost Per $1,000 of Protection for 1 Month ), the cost per month per thousand dollar for age 31 is $0.08.

Total annual cost to be included in income=0.08*12*130= $ 124.80

If the coverage exceeds $ 50,000, the employee must include in gross income the imputed cost on the protection above this amount. Therefore, Erin includes $124.80