8789 / Is the value of employer-provided coverage under accident or health insurance taxable income to an employee?

Generally, no. This includes medical expense and dismemberment and sight loss coverage for the employee, the employee’s spouse and dependents, and coverage providing for disability income for the employee. Unlike the exclusion for group-term life insurance, there is no specific limit on the amount of employer-provided accident or health coverage that may be excluded from an employee’s gross income. Further, coverage is tax-exempt to an employee when it is provided under a group insurance policy.¹ Similarly, the employee is not taxed on the value of critical illness coverage.

Accidental death coverage apparently also is excludable from an employee’s gross income under IRC Section 106(a).²

The IRS has ruled privately that the value of consumer medical cards purchased by a partnership for its employees was excludable from the employees’ income under IRC Section 106(a).³

Where an employer applies salary reduction amounts to the payment of health insurance premiums for employees, the salary reduction amounts are excludable from gross income under IRC Section 106.⁴