An employer can deduct the cost of providing group term life insurance, which is the cost of the premiums. Typical coverage runs two times or more of the annual salary of the employee. The cost for up to $50,000 of coverage is excludable from an employee’s gross income. If coverage over $50,000 is provided, an imputed income amount for excess coverage is includable in the employee’s gross income.
The employer reduced its taxable income by $5,000 by deducting the cost of providing group term life insurance for its employees. Since the business income was taxed at the 30% tax bracket, the income reduction may decrease its income taxes by $1,500 ($5,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by deducting the cost of providing group term life insurance for your employees.