Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary. Sam, a vice-president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums (based on Sam's age) are $.25 per month for $1,000 of protection. How much must Sam include in gross income this year?
A) $0.
B) $375.
C) $450.
D) $600.
E) None of these.

Question

Quizplus · Accepted Answer

Sam must include in gross income the cost of group term life insurance provided by Green, Inc. up to $50,000. The cost is calculated by multiplying the Uniform Premiums ($0.25 per month for $1,000 of protection) by the amount of coverage that exceeds $50,000. In this case, Sam received $200,000 of coverage, which exceeds $50,000 by $150,000. Therefore, the cost is $150,000 x $0.25 = $37,500. Since the cost to Green was $1,500, Sam must include $450 ($37,500 / $100) in gross income. Therefore, the correct answer is C.