Q&A: Is Paying Our Pastor’s Life Insurance Premium a Taxable Fringe Benefit?

There are tax Consequences for such an action.

Elaine L. Sommerville, CPA
Bio
We’re a small rural church, and our pastor is the only employee. We’re considering getting him a $50,000 life insurance policy and paying the premium on it. He will name the beneficiary. Can the church get a $50,000 group life insurance policy with only one employee? Would the premium the church pays on this be considered a taxable fringe benefit if the minister names the beneficiary of his choosing (even if it’s $50,000 or less)?

Providing life insurance to a pastor, whether or not he is the only employee of the church, has tax consequences. Life insurance paid by an employer is a taxable benefit in instances where the employee can select the beneficiaries. Without a separate provision, the cost of the life insurance should be added to the employee’s wages in Box 1 of the Form W-2. While employers can provide life insurance up to $50,000 of coverage through a group term life insurance plan on a tax free basis, one employee does not constitute a group. Therefore, the group term life insurance benefit is not available in this instance. The church may pay the life insurance premiums for the minister as long as it treats it as a taxable fringe benefit for payroll reporting purposes. This is true no matter the amount of life insurance that is provided.

Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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