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.
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