What Does GTL Mean on a Pay Stub & How It’s Taxed

Pay stubs often contain acronyms causing confusion. One such item that might appear is “GTL,” an entry that influences an employee’s taxable income without being a direct cash earning or typical payroll deduction. Understanding its impact on overall compensation is important. This article clarifies what GTL represents and how it affects your pay.

Understanding Group Term Life Insurance

GTL stands for Group Term Life Insurance, a type of life insurance policy provided by an employer to its employees. This benefit is typically offered as part of an employee benefits package. Group Term Life Insurance differs from individual life insurance policies that an individual might purchase independently, as it is a benefit arranged and often partially or fully paid for by the employer.

The primary purpose of Group Term Life Insurance is to offer financial protection to an employee’s beneficiaries in the event of the employee’s death. The coverage amount can vary, sometimes based on a multiple of the employee’s salary or a flat amount. This employer-provided benefit provides security without direct premium payments from the employee’s take-home pay for the initial coverage amount.

Why GTL Appears on Your Pay Stub

Group Term Life Insurance appears on a pay stub due to Internal Revenue Service (IRS) regulations. The IRS allows an exclusion for the first $50,000 of group term life insurance coverage provided to an employee. However, any coverage exceeding this $50,000 threshold is considered a taxable non-cash benefit.

The value of this excess coverage is referred to as “imputed income.” This means that even though an employee does not receive this amount as cash, the IRS considers it as part of their taxable wages. This imputed income is added to an employee’s gross taxable income for reporting purposes, rather than being a deduction from their gross pay.

Tax Implications of GTL

The imputed income from Group Term Life Insurance over $50,000 has direct tax consequences for employees. This amount is calculated using a formula provided by the IRS, known as the Uniform Premium Table (also referred to as IRS Table I). This table considers factors such as the employee’s age and the amount of coverage exceeding $50,000 to determine the taxable value. The cost is based on the IRS table rates, not necessarily the actual premium paid by the employer or employee.

This imputed income increases the employee’s taxable gross wages, which are ultimately reported on their Form W-2 at the end of the year. While federal income tax withholding is not always mandatory on imputed income, the imputed income is subject to Social Security and Medicare taxes, commonly known as FICA taxes. These FICA taxes are typically withheld from the employee’s actual cash wages.

Furthermore, this additional taxable income may lead to an increased federal income tax liability. Although employers might not withhold federal income tax directly on this amount, the higher taxable income can result in more of the employee’s regular pay being subject to federal income tax withholding. State and local tax treatment of imputed income can vary, but it is often also subject to these taxes. The employee does not receive this imputed income in cash; it merely inflates their taxable income for calculation purposes, which can lead to a slightly reduced net pay due to higher tax withholdings.