Question 21

The employer may file a tax deduction for its share of the premium costs.

Under federal tax laws, an employer can deduct the premium costs associated with contributory group term life insurance plans provided to employees, making this statement correct.

A) The employer may file a tax deduction for its share of the premium costs.

This option is correct because under IRS regulations, premiums paid by an employer for group term life insurance are generally tax-deductible as a business expense. This deduction applies to the portion of premiums paid by the employer for employees covered under the plan.

B) The employees may file tax deductions for their share of the premium costs.

This statement is incorrect. Generally, employees cannot deduct premiums paid for group term life insurance, as these costs are considered a personal expense rather than a business-related expense. The cost of premiums paid by employees is typically not tax-deductible.

C) The proceeds are taxable to the beneficiaries.

This statement is also incorrect. Life insurance proceeds paid to beneficiaries upon the death of the insured are usually not subject to income tax. This tax-exempt status applies to the benefits received, making this option inaccurate in the context of group term life insurance.

D) The policies' cash values accumulate as tax-sheltered equity.

This option is incorrect because group term life insurance does not accumulate cash value; it provides pure life insurance coverage. Therefore, there is no tax-sheltered equity to consider in this context, making this statement false.

Conclusion

The correct answer, A, clearly establishes that employers can deduct their portion of premiums for group term life insurance, which aligns with IRS guidelines. In contrast, the other options incorrectly address employee deductions, tax implications of policy proceeds, and the nature of cash values in term policies, thereby failing to accurately reflect the tax treatment of such insurance plans.