Group life insurance paid through a cafeteria plan

[Guest Benefitsrock]

How are the proceeds of group term life insurance taxed if an employee pays for them through a cafeteria plan? Any help would be appreciated.

[papogi]

Life insurance proceeds, even if premiums are initially paid for by the employee on a pre-tax basis, are tax-free.

[Guest Stuartt]

Life insurance provided under a cafeteria plan is considered a nonqualified benefit under the new 125 regulations. A plan offering any nonqualifed benefit is not considered a cafeteria plan.

If your Section 125 plan document provides for such a benefit, you may want to review the new regs and make some changes to the plan document.

Life insurance proceeds will generally be tax-free to the beneficiary. The premium payments by the employee would have to be on an after-tax basis (and not through the cafeteria plan).

[QDROphile]

The new regulations have not changed anything with respect to group term life insurance, see section 1.125-1(a)(3)(A).

[LRDG]

Group Term Life premiums paid through a Sec. 125 plan for no more than $50k total coverage, is non-taxable. Benefits paid under Sec. 125, for no more than $50k coverage is non-taxable.

If however ER provides $50k and EE purchases additional $5k, the total would exceede the allowable $50k total, premium for additional $5k is taxable at Table II(?) rates, I believe the first $50k benefit is non-taxable. A review of Sec. 125 and Sec. 79 would provide additional guidence.