What Does GTL Stand for in Payroll?

When reviewing a pay stub, you might encounter the acronym “GTL.” GTL stands for Group-Term Life insurance, a common employee benefit. This article clarifies what Group-Term Life insurance means in the context of payroll, explaining why it might appear on your pay stub or tax forms, and outlining its tax implications. Understanding this benefit helps in comprehending your overall compensation and its related tax treatment.

Understanding Group-Term Life Insurance

Group-Term Life insurance is a type of life insurance policy that an employer provides to a group of employees. This benefit typically offers financial protection to an employee’s beneficiaries in the event of their death. Unlike individual life insurance policies, which are purchased by one person, a group-term policy covers multiple individuals under a single master policy. The employer usually holds this master policy.

The insurance coverage is generally for a specific period, often coinciding with the duration of an employee’s employment. If an employee leaves the company, the coverage typically ceases, though some policies offer conversion options to individual plans. Employers often offer this benefit at a low or no direct cost to the employee, making it an affordable way to secure some level of life insurance coverage.

The amount of coverage can vary, sometimes based on a multiple of an employee’s salary or as a flat amount. For instance, an employer might provide coverage equal to one or two times an employee’s annual salary. While the employer typically pays the premiums for basic coverage, employees might have the option to purchase additional coverage beyond the basic limits, often at their own expense.

Taxable Imputed Income

While Group-Term Life insurance is a valuable benefit, its value above a certain threshold is considered taxable income to the employee, even though no cash is directly received. This concept is known as “imputed income.” The Internal Revenue Service (IRS) allows the first $50,000 of employer-provided group-term life insurance coverage to be tax-free for the employee under Internal Revenue Code Section 79.

Imputed income arises when employer-provided coverage exceeds $50,000. The cost of coverage above this limit becomes taxable to the employee. To determine this amount, employers use uniform premium tables that provide a monthly cost per $1,000 of coverage based on the employee’s age. The calculation involves taking the excess coverage (total coverage minus $50,000), dividing it by $1,000, and then multiplying by the applicable rate from the IRS table for the employee’s age and the number of months the coverage was in effect.

This imputed income, even though it is a non-cash benefit, is subject to Social Security and Medicare taxes (FICA taxes). While federal income tax withholding is not always required, the amount is still considered part of the employee’s gross income for federal income tax purposes. Any amount the employee pays towards the insurance with after-tax dollars reduces the taxable imputed income.

Reporting on Paychecks and Tax Forms

The imputed income associated with Group-Term Life insurance typically appears on an employee’s pay stub and year-end tax forms. On a pay stub, this amount might be listed as a non-cash earning or as a specific line item related to GTL. While it increases the taxable gross pay for certain tax calculations, employees do not physically receive this amount in their paycheck.

At the end of the year, the taxable imputed income for GTL is reported on the employee’s Form W-2. This amount is included in Box 1 (“Wages, tips, other compensation”), Box 3 (“Social Security wages”), and Box 5 (“Medicare wages”). The taxable cost of group-term life insurance over $50,000 is also separately reported in Box 12 of the W-2 with Code “C.” This Box 12 entry indicates the amount of taxable GTL imputed income for the year.