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Internal Revenue Code Section 79
Internal Revenue Code Section 79
Group Term & Group Permanent Life Insurance
Group Insurance is a Significant Employee Benefit
A business can provide group insurance for employees and take an income tax deduction for premiums paid and have employees receive favorable taxation on the coverage. If life insurance is needed, finding and paying premiums with after-tax dollars may be expensive.
The source of the premium is the business. Group insurance premiums are income tax deductible for the business and may have a significant effect on corporate and personal tax liability. Life insurance protection is available without paying the entire premium cost on an individual after-tax basis.
It Works Like This
- The business adopts a group insurance plan that qualifies under Section 79 of the Internal Revenue Service Code.
- The business pays income tax deductible contributions to the insurance company.
- The employee is not taxed on the full amount of the premium payment but rather on the imputed income attributable to his or her coverage in excess of $50,000. However, any employee contributions reduce this imputed income dollar for dollar. This tax benefit is not available to key employees if the plan is discriminatory (see below).
- The employee is taxed on the permanent portion of the total coverage less any employee contributions.
- Death benefits are paid to the employee's beneficiary income tax free.
Advantages to the Business
- A Section 79 Plan is an attractive fringe benefit to be used to retain and reward key employees.
- The business is entitled to "an ordinary and necessary business expense" income tax deduction, provided that total compensation to any employee is reasonable.
- The business is also entitled to income tax deductions for any additional
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