What Is GTL (Group Term Life) on a Paycheck?

Group Term Life (GTL) insurance is a common workplace benefit offering financial protection to employees. While often provided at no direct cost, its value can appear on a paycheck due to specific tax regulations. Understanding GTL helps clarify your compensation and tax obligations.

Understanding Group Term Life Insurance

Group Term Life insurance is a type of life insurance policy employers offer to a group of their employees. Unlike individual life insurance policies, GTL is arranged at a group level, which can make it more accessible and often more affordable for employees.

Employers generally provide a base amount of GTL coverage, sometimes at no cost to the employee, as part of their benefits package. Employees may also have the option to purchase additional coverage beyond the basic employer-provided amount.

Why GTL Appears on Your Paycheck

Group Term Life insurance can appear on a paycheck due to “imputed income.” This refers to the value of certain non-cash benefits the Internal Revenue Service (IRS) considers taxable. For GTL, its value is treated as if an employee received cash for tax purposes.

The IRS allows an exclusion for the first $50,000 of employer-provided GTL coverage. Any coverage exceeding this $50,000 threshold is considered taxable imputed income.

The value of the excess coverage is added to an employee’s gross wages, increasing their total taxable income. This is not a cash deduction from take-home pay, but an adjustment reflecting the benefit’s taxable value.

Calculating Taxable GTL Income

The specific amount of taxable GTL imputed income is determined by a formula set by the IRS. The calculation uses the employee’s total coverage amount, subtracts the $50,000 exclusion, and then applies a rate from the IRS’s Uniform Premium Table, also known as Table 1. This table provides uniform monthly premium costs per $1,000 of coverage, which are based on five-year age brackets.

To illustrate, the formula generally involves taking the coverage amount exceeding $50,000, dividing it by $1,000, and then multiplying this result by the applicable rate from the Uniform Premium Table for the employee’s age bracket. For example, if an employee has $100,000 in GTL coverage and is in an age bracket with a Table 1 rate of $0.10 per $1,000, the calculation would apply to the $50,000 excess coverage. This $50,000 excess, divided by $1,000, equals 50 units. Multiplying 50 units by $0.10 results in $5.00 of monthly imputed income.

This monthly imputed income amount is then totaled for the year. Employers are responsible for performing this calculation and accurately reporting the imputed income. The cost of coverage for this calculation is based on the IRS’s Table 1 rates, not the actual premium an employer pays for the policy.

Tax Implications of GTL

The calculated taxable GTL imputed income directly impacts an employee’s tax obligations. This non-cash income is added to an employee’s gross wages for federal income tax purposes. This means it increases the total amount of income subject to federal income tax, although it is not typically subject to federal income tax withholding.

Furthermore, GTL imputed income is subject to Social Security (FICA) and Medicare taxes. These payroll taxes are withheld from an employee’s actual wages.

State and local income tax implications can vary depending on the specific jurisdiction. However, many states generally follow federal treatment regarding the taxability of GTL imputed income. This adjustment to taxable income can lead to a slightly higher overall tax liability or increased tax withholding throughout the year, even though no cash is received directly from the benefit.

Finding GTL Details on Your Paycheck and W-2

Employees can locate details about Group Term Life insurance on their pay stubs and annual W-2 forms. On a pay stub, this information typically appears as a line item labeled “GTL,” “Imputed Income – GTL,” or a similar descriptive phrase. This amount is usually listed within the earnings section, signifying that it has been added to the gross pay calculation for tax purposes, rather than being a cash earning or a direct deduction.

At the end of the year, the total annual imputed GTL income is reported on the employee’s Form W-2. This amount is included in Box 1, “Wages, tips, other compensation,” which represents the total taxable wages. Additionally, the imputed cost of GTL coverage over $50,000 is often specifically reported in Box 12 of the W-2, using Code “C.” If there are specific questions regarding how GTL is displayed on a personal pay statement or W-2, contacting the employer’s human resources or payroll department is advisable.