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

There are tax Consequences for such an action.

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.

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