Is voluntary life insurance considered pre-tax?
This question was answered by Taylor, CPAI, Deduction’s AI tax accountant, and Deduction’s licensed CPAs.
It depends on who pays the premiums and how much coverage you have. For tax year 2025, voluntary life insurance is often pre-tax for the employee up to certain limits, but not always.
Employer-provided group-term life insurance (GTLI)
If voluntary life insurance is offered through your employer as group-term life insurance:
Coverage up to $50,000
- The cost of coverage up to $50,000 is excluded from income.
- Premiums for this portion are treated as pre-tax (not included in wages).
Coverage over $50,000
- The value of coverage above $50,000 is taxable income to the employee.
- This taxable amount is called imputed income and is calculated using IRS Table I rates.
- The imputed income is:
- Included in Box 1 (wages) on Form W-2
- Subject to Social Security and Medicare taxes
- Not subject to federal income tax withholding (but still taxable)
2. Employee-paid voluntary life insurance
If you pay the premiums yourself through payroll deductions:
- Premiums are generally paid with after-tax dollars
- Premiums are not deductible
- Any death benefit is generally tax-free to beneficiaries
3. Employer-paid voluntary life insurance
If the employer pays some or all of the premium:
- Up to $50,000 of coverage → pre-tax
- Over $50,000 → taxable imputed income to the employee
4. Why people get confused
Many employees assume:
“If it’s voluntary, it must be pre-tax.”
That’s not correct.
- Voluntary refers to optional enrollment, not tax treatment.
- Tax treatment depends on who pays the premium and the amount of coverage, not whether enrollment is voluntary.
Quick summary
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Source:
IRC § 79
Treasury Regulation § 1.79-1
IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits
IRS Publication 525, Taxable and Nontaxable Income
The information provided does not, and is not intended to, constitute legal advice.
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