D is the correct examination answer. Although the wording “No premium tax is required” is somewhat imprecise relative to the question's reference to taxable income, the underlying rule is clear: employer-provided group-term life insurance generally creates no imputed taxable income when coverage does not exceed $50,000 .
The corporation provides only $10,000 of coverage per employee , which is well below the federal exclusion threshold. The fact that the employer pays $5 per month, or $60 annually, does not make that $60 taxable merely because the premium exceeds a particular dollar amount. The federal tax rule is primarily based on the amount of group-term life coverage , not whether the employer's actual annual premium exceeds $30 or $50.
The IRS states that IRC §79 excludes the cost of the first $50,000 of employer-provided group-term life insurance and expressly states that there are no tax consequences when total qualifying coverage does not exceed $50,000. Only the imputed cost associated with qualifying coverage above $50,000 is generally included in the employee's income.
The Hawaiʻi examination outline specifically includes tax treatment of group life insurance as an examinable concept.
Reference topics: Tax Treatment of Insurance Premiums and Proceeds; Group Life Insurance; IRC §79.
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