What Does GTL Mean in Payroll and on Your W-2?
Understand GTL's presence on your financial compensation records. Clarify how this common employee benefit affects your reported earnings.
Group Term Life (GTL) insurance is an employer-provided benefit that appears as entries on your paycheck and W-2 form. Understanding these entries is important for employees, though not a direct cash payment. This is due to specific tax regulations regarding the value of employer-sponsored life insurance.
What is Group Term Life Insurance?
Group Term Life (GTL) insurance is an employer-provided life insurance policy for a group of employees. This benefit offers financial protection to an employee’s beneficiaries if they die while employed. It is a valued part of an employee benefits package, providing security for employees and their families.
The “term” aspect of GTL means coverage is for a specific period, usually tied to employment. Unlike individual life insurance policies, GTL policies pool risk across a larger group, making coverage more affordable. Many employers offer a base amount of GTL coverage at no direct cost to the employee.
Employers may structure GTL plans with a fixed benefit amount, like $50,000, or as a multiple of an employee’s annual salary. Basic coverage often does not require medical examinations, making it accessible. While basic coverage is employer-paid, employees may purchase additional supplemental coverage.
How Group Term Life Insurance Appears on Your Paycheck
When employer-provided Group Term Life (GTL) insurance coverage exceeds $50,000, a unique tax situation impacts your paycheck. The Internal Revenue Service (IRS) considers the value of this coverage over $50,000 as “imputed income.” Imputed income is a non-cash benefit considered taxable by the IRS.
The calculated value of GTL coverage above the $50,000 threshold is added to your gross wages for tax calculations. This adjustment increases your taxable wages, though it does not increase your actual take-home pay. This inclusion ensures Social Security and Medicare (FICA) taxes are correctly withheld from this imputed income.
Federal income tax withholding is not required on this imputed income, but it is subject to FICA taxes (Social Security at 6.2% and Medicare at 1.45%). Your employer calculates this imputed income based on IRS tables, which factor in your age and the amount of coverage exceeding $50,000. This explains why GTL appears as an earning on your pay statement, impacting only certain payroll taxes.
GTL Reporting on Tax Forms
The taxable portion of Group Term Life (GTL) insurance, the imputed income for coverage over $50,000, is reported on your annual W-2 form. This amount is included in several key boxes on the W-2, reflecting its treatment as taxable wages. The imputed income from GTL is added to the total reported in Box 1, “Wages, tips, other compensation.”
Beyond Box 1, this taxable value also contributes to the amounts reported in Box 3, “Social Security wages,” and Box 5, “Medicare wages and tips.” This ensures that the FICA taxes previously withheld on this imputed income are accurately reflected for your annual tax filing. The taxable GTL amount is also separately identified in Box 12 of your W-2 for transparency.
In Box 12, the imputed income from GTL is reported with Code C. This code helps you and the IRS identify the exact amount of taxable GTL benefit received. Understanding these W-2 entries is important for verifying tax document accuracy and preparing your income tax return.