26 U.S.C. § 79 — Group-term life insurance purchased for employees

(a) General rule. If your employer, or employers, provide group-term life insurance on your life for part or all of the year, you must include some of its cost in your taxable income for that year. You only count the amount that is more than the cost of $50,000 of insurance, plus whatever you personally paid toward the insurance. (b) Exceptions. Subsection (a) does not apply to: insurance cost after you have left your job with that employer, if you are disabled within the meaning of section 72(m)(7); insurance cost during the year if, for the entire time you were covered, either your employer is the beneficiary or the sole beneficiary is a charity described in section 170(c); and insurance provided under a contract covered by section 72(m)(3). (c) Determination of cost of insurance. For this section and section 6052, the cost of the insurance during any period is figured using uniform premium tables — based on 5-year age brackets — that the Secretary sets by regulation. (d) Nondiscrimination requirements. If a group-term life insurance plan discriminates in favor of "key employees," then the $50,000 exclusion in subsection (a) does not apply to a key employee, and a key employee's taxable cost is the higher of the cost figured with the uniform tables or without them. A plan discriminates unless it does not favor key employees in who can join, and does not favor key employees in the type or amount of benefits. A plan meets the "who can join" test only if it covers 70 percent or more of all employees, at least 85 percent of participants are not key employees, it covers employees under a classification the Secretary finds is not discriminatory, or — for a plan that is part of a cafeteria plan — it satisfies section 125's requirements. When testing this, the employer may leave out employees with under 3 years of service, part-time or seasonal employees, employees covered by a good-faith collective bargaining agreement instead of the plan, and nonresident-alien employees with no U.S.-source earned income. A plan fails the benefits test unless every benefit available to key employees is also available to everyone else. A plan does not automatically fail the benefits test just because the amount of insurance is set as a uniform share of pay. "Key employee" has the meaning given in section 416(i)(1), and also includes a former employee who was a key employee when they retired or left. This nondiscrimination subsection does not apply to a church plan for church employees; "church plan" and "church employee" have the meanings given in section 414(e)(1) and (3)(B), except that section 414(e) is applied by substituting "section 501(c)(3)" for "section 501," and "church employee" excludes employees of certain listed non-church-affiliated schools and organizations. Regulations may apply this subsection separately to former employees. (e) Employee includes former employee. For this whole section, "employee" includes a former employee. (f) Exception for life insurance purchased in connection with qualified transfer of excess pension assets. The exception in subsection (b)(3) and in section 72(m)(3) do not apply to insurance cost paid with assets from an "applicable life insurance account," as defined in section 420(e)(4), under a defined-benefit pension plan.