Group life over $50,000 and imputed income

If your employer pays for group term life insurance worth more than $50,000, the IRS treats the cost of the excess coverage as extra pay to you, even though you never receive it in cash. That "imputed income" shows up on your W-2, is subject to Social Security and Medicare tax, and is usually small: a few dollars a month for most people. The death benefit your family eventually receives is a separate matter and is generally not taxed as income.

Why the $50,000 line exists

Section 79 of the Internal Revenue Code lets an employer provide up to $50,000 of group term life coverage to each employee tax-free. Coverage above that amount is a taxable fringe benefit. The taxable amount is not the premium your employer actually pays. It is a cost figure taken from an IRS table, which is why two people with identical coverage but different ages are taxed differently while a group-wide premium rate plays no role.

The rule applies to term coverage provided through an employer group plan, such as basic life set at one or two times salary. It does not apply to individual permanent policies, and it does not affect the tax treatment of the death benefit. For background on how workplace coverage fits with the rest of your protection, see employer group life insurance: what it really covers and is life insurance through work enough?.

The 2026 Table I rates

The IRS publishes the cost per $1,000 of coverage per month in Table 2-2 of Publication 15-B, commonly called Table I. For 2026, using your age on the last day of the tax year:

The rates rise with age, so the tax bite is mildest for young workers and noticeably larger after 60.

How to calculate it

1. Take your total employer-provided group term coverage.
2. Subtract $50,000.
3. Divide the result by $1,000.
4. Multiply by the Table I rate for your age.
5. Multiply by the number of months of coverage in the year (12 for a full year).
6. Subtract anything you paid toward the coverage with after-tax dollars. The result is your imputed income.

You can run the numbers with the imputed income calculator for group life over $50,000.

Worked example (hypothetical)

Say a 45-year-old employee has employer-paid group life equal to $150,000 for all of 2026.

• Excess coverage: $150,000 minus $50,000 is $100,000, or 100 units of $1,000.
• Table I rate for ages 45 to 49: $0.15 per unit per month.
• Annual imputed income: 100 x $0.15 x 12 = $180.

That $180 is added to the employee's wages. At a combined 7.65% Social Security and Medicare rate, the payroll tax is about $13.77, and at a 22% federal bracket the income tax is about $39.60. The actual cost of the benefit to this employee is roughly $53 for the year, in exchange for $150,000 of protection. The same coverage for a 62-year-old would be 100 x $0.66 x 12 = $792 of imputed income.

What you will see on your W-2

Imputed income is included in your taxable wages in Box 1 and in the Social Security and Medicare wage boxes (3 and 5). The excess coverage cost is also reported in Box 12 with code C, which is how you can confirm the figure matches your own calculation. Employers generally are not required to withhold income tax on this amount, but it is still taxable income, so you may notice a slightly higher tax bill or smaller refund if you do not adjust your withholding.

If the amount on your W-2 looks wrong, ask payroll which age and coverage amount they used, and whether any after-tax contributions you made were subtracted.

Cases where the tax does not apply

• Coverage of $50,000 or less. Nothing is imputed.
• Coverage you pay for yourself with after-tax dollars. The Table I cost is reduced by what you pay. If you pay at least the Table I cost, the imputed income is zero.
• Plans where the employer or a charity is the beneficiary. Special rules exempt coverage payable to the employer or to a qualified charity.
• Dependent coverage of $2,000 or less. Spouse and child coverage at or below this level is a tax-free de minimis benefit under Pub 15-B. Above $2,000, the cost of the dependent coverage is generally taxable to the employee, less any after-tax contributions.
• Plans that favor key employees. A plan that discriminates in favor of key employees can lose the $50,000 exclusion for those employees, a technical issue for employers rather than for most workers.

What imputed income does not change

It does not make your death benefit taxable. Under IRS rules, life insurance paid because of the insured's death is generally not income to the beneficiary, although interest paid on proceeds is taxable, as the IRS explains in its life insurance proceeds FAQ. Group coverage can, however, be counted in your taxable estate if your total estate is large enough to matter (see life insurance and the federal estate tax).

It also does not usually justify turning down coverage. A few hundred dollars of added taxable income for six figures of protection is typically a good trade, and extra supplemental coverage you buy yourself with after-tax dollars generally avoids further imputed income. See supplemental (voluntary) life insurance at work for how that works and what it costs. If you leave your job, keeping group life insurance when you leave a job explains how to keep coverage.

Key takeaways

• Employer-paid group term life above $50,000 creates taxable imputed income, calculated from the IRS Table I rates for your age, not from the real premium.
• For 2026 the monthly rate runs from $0.05 per $1,000 under age 25 to $2.06 at 70 and older (IRS Publication 15-B).
• A hypothetical 45-year-old with $150,000 of coverage would have about $180 of imputed income for the year.
• Imputed income appears in W-2 Boxes 1, 3 and 5 and is flagged with code C in Box 12; it does not make the death benefit taxable.
• Dependent coverage of $2,000 or less and any amount you pay with after-tax dollars reduce or remove the tax.