In which scenario is a death benefit treated as taxable income?

A death benefit is treated as taxable income in scenarios where the employer-paid premiums exceed $50,000. This taxable treatment arises due to the Internal Revenue Service (IRS) rules regarding group-term life insurance. For group term policies, if the employer provides coverage that exceeds $50,000, the value of the premiums paid by the employer for the excess coverage becomes taxable to the employee.

In this context, the value of the premiums for coverage over the $50,000 threshold is considered a fringe benefit and is included in the employee's gross income for tax purposes. The calculations to determine the taxable amount involve applying a formula based on the insured's age and the amount of excess coverage.

Understanding how group life insurance benefits are taxed is crucial for both employers and employees since it affects financial planning and tax liabilities. The other scenarios do not trigger the same tax implications. For instance, when the premiums are paid by the employee’s contributions, or if the coverage is below $50,000, those amounts are typically not subject to income tax. Moreover, simply having a group policy does not inherently lead to tax implications unless the conditions regarding taxable amounts are met.