Group-Term Life Imputed-Income Calculation Practice Questions

The key figure is the taxable cost of excess group-term life protection, not the excess death benefit itself. An employee with $150,000 of employer-provided group-term life coverage does not automatically have $100,000 of taxable wages. Under the ordinary rule, $100,000 is the coverage amount on which a deemed monthly insurance cost is calculated. The cost depends on age, months of coverage, and employee contributions. This article uses IRS Publication 15-B's 2026 Table 2-2 rates. The case questions are original; they are not reproduced Texas licensing exam items. Real payroll calculations require the current IRS publication, full plan facts, and any applicable special rules.

The calculation in four steps

First verify the employer coverage is a qualifying group-term life plan and that the ordinary $50,000 exclusion applies. Second subtract $50,000 from total covered face amount; if the result is zero or negative, the ordinary excess-coverage calculation is zero. Third convert excess dollars into thousands and multiply by the Table 2-2 monthly rate for the employee's age on the last day of the tax year. Fourth multiply by covered months and reduce the result by what the employee paid toward this insurance, to the extent appropriate. Publication 15-B includes rounding to the nearest $100 for the excess amount and prorating for partial months; the clean classroom examples below deliberately use whole thousands and full months unless stated otherwise.

Question 1: exactly at the exclusion

The word qualifying matters. A plan that does not meet the group-term life rules cannot be analyzed by applying the threshold mechanically. On a licensing question that explicitly gives a qualifying employer plan, however, the $50,000 boundary is the first screen.

Question 2: a full year at age 40

A common wrong answer is $10, which stops at the monthly figure. Another is $1,200, which treats $0.10 as $1.00. The IRS rate is stated per $1,000 of excess protection per month, so both the coverage unit and time unit must be present.

Question 3: employee contribution

The contribution must actually be toward the relevant insurance. A deduction for an unrelated benefit cannot be inserted into this equation. In a real payroll file, distinguish employee paid group life from voluntary individual coverage, spouse coverage, and permanent insurance features before computing the result.

Question 4: six months of coverage

If the employee starts midmonth, do not round an uncertain period to a full month by habit. Publication 15-B directs proration for less than a full month. Determine the employer's actual coverage dates and payroll accounting approach under current instructions.

Question 5: age band at year end

This is one reason a rate table should not be recalled vaguely as 'age 40s.' Ages 40–44 and 45–49 have different IRS rates. For real reporting, verify which tax year publication applies and whether unusual plan features alter the ordinary calculation.

Question 6: no contribution below threshold

Never start with the contribution. Start with the face amount above the exclusion. The employee contribution enters after the age-based cost is calculated. This order prevents nonsensical negative imputed income answers in simple exam cases.

Question 7: contribution exceeds calculated cost

This case illustrates why employer-paid and employee-paid group plans cannot be treated identically without numbers. A contribution does not change the $50,000 exclusion itself; it changes the amount left after the IRS cost calculation.

Question 8: identifying the taxable base

The same unit discipline works for other insurance questions: death benefit is dollars payable upon a covered death; premium is the price charged by the insurer; imputed cost is a tax valuation under IRS rules. Swapping these figures can cause errors several orders of magnitude larger than the correct answer.

Question 9: W-2 placement

Box 12 code C is a useful recognition cue for the exam, but an agent should not infer a customer's exact tax liability from the code alone. Payroll, other wages, withholding elections, and special employee categories can affect what is eventually paid. The article teaches the standard computation, not personal return preparation.

Question 10: a different type of coverage

Likewise, spouse or dependent coverage and permanent benefits can trigger different treatment. Group life in ordinary conversation is wider than the specific plan category covered by the IRS wage exclusion. The practice questions state qualifying coverage when they intend the ordinary formula to apply.

Question 11: highly compensated employee

A sales agent generally is not the employer's tax adviser, but should recognize when a special plan design deserves payroll or legal review. Group-term life may be a simple consumer concept yet have complex employer tax conditions.

Question 12: mixed coverage in one year

It can help to draw a two-row table: period, face amount, excess amount, rate, months, and cost. That separates the variable coverage from the fixed age rate. If the employee made contributions, allocate or subtract them according to what they actually paid toward the coverage and current payroll instructions.

How to check your answer quickly

First ask whether the coverage is qualifying group-term life for the employee rather than accident-only, spouse, dependent, or a permanent-benefit arrangement with separate rules. Then write face amount minus $50,000 and stop at zero if the result is not positive under the ordinary exclusion. Convert that excess to thousands; the IRS rate is never applied directly to the full dollar face amount. Choose the age row using age at the last day of the employee's tax year. Multiply the monthly rate by the thousands and actual period of coverage, prorating partial months when required. Reduce the result by the employee's payment toward the cost. Finally, distinguish the computed wage inclusion from the death benefit, employer premium, or ultimate tax bill. The first number belongs to payroll reporting, while the latter questions have their own rules.

For example, with $300,000 of qualifying coverage, the base is $250,000 of excess protection or 250 thousands. If the stated age rate is $0.15, one full month produces $37.50 of deemed cost. Twelve months produce $450 before employee payments. That calculation says nothing by itself about how much an insurer charges the employer, what a beneficiary receives on death, or whether the coverage is appropriate for the family's needs. Keeping those decisions separate helps on the exam and in real conversations.