Short answer: Employer-paid dependent life with a face amount of $2,000 or less is a tax-free de minimis benefit. Above $2,000, the cost the employee does not pay after tax is generally taxable unless it is too small to account for. In Texas, dependent coverage cannot exceed the amount the employee is eligible for.
Dependent life is not group term life under the $50,000 rule. Instead the IRS treats employer-paid coverage on a spouse or dependent as a de minimis fringe benefit if the face amount is $2,000 or less. That is why so many plans set employer-paid dependent life at exactly $2,000 and offer larger amounts as employee-paid voluntary coverage.
Texas law lets group life be extended to a spouse, to a natural or adopted child younger than 25 (or an older age stated in the policy) or a disabled child under the parents’ supervision, and to a grandchild younger than 25. The employer, the employee, or both may pay. The amount on a spouse or child may not exceed the amount the employee is eligible for.
When the employee’s coverage ends because of termination, loss of eligibility or death, or the group policy ends, a covered spouse has the same conversion rights as the employee.