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

Understanding Group Term Life on Your Paycheck

When reviewing a pay stub, employees might notice an entry labeled “GTL” or “Group Term Life.” This refers to Group Term Life insurance, a common benefit employers provide to their workforce. It is a type of life insurance coverage offered under a single policy to a group of individuals, typically employees of a company.

Understanding Group Term Life Insurance

Group Term Life insurance is a type of life insurance policy purchased by an employer for its employees. This benefit provides financial protection to an employee’s beneficiaries in the event of their death. The “term” aspect signifies that the coverage is for a specific period, often renewing annually as long as the individual remains employed. Employers typically offer this coverage at little to no direct cost to the employee.

The amount of coverage often varies, frequently determined as a multiple of an employee’s annual salary or a flat amount for all eligible employees. For instance, an employer might provide coverage equal to one or two times an employee’s yearly earnings. This provides financial security to employees’ families without requiring individual policy applications.

The Taxable Component of Group Term Life Insurance

A specific aspect of employer-provided Group Term Life insurance involves its tax treatment, particularly regarding what is known as “imputed income.” The Internal Revenue Service (IRS) considers the cost of employer-provided GTL coverage exceeding $50,000 to be a taxable benefit to the employee. This means the value of coverage above that threshold is treated as if the employee received additional taxable income.

This imputed income is not actual cash paid to the employee but rather a non-cash benefit that adds to their gross wages for tax calculation purposes. The IRS provides a Uniform Premium Table (Table 2) which employers use to calculate the value of this excess coverage based on the employee’s age. This calculated amount is then added to the employee’s taxable income. For example, a 40-year-old employee with $100,000 in coverage would have the value of $50,000 in coverage imputed as income, calculated using the IRS’s specified rates.

The purpose of this rule is to prevent employers from providing unlimited amounts of tax-free life insurance coverage as a form of compensation. Employers must include this calculated imputed income amount in the employee’s gross wages subject to federal income tax, Social Security, and Medicare taxes. Even though the employee doesn’t receive this amount directly, it increases their overall taxable earnings.

Reporting Group Term Life Insurance on Paychecks and Tax Forms

The imputed income from Group Term Life insurance appears on an employee’s pay stub, often identified as “GTL Imputed Income” or a similar designation. While this amount increases the employee’s gross taxable wages, it typically does not result in a direct deduction from their net take-home pay. Instead, it increases the total amount of income subject to payroll tax withholdings.

At the end of the year, this imputed income is reported on the employee’s Form W-2, Wage and Tax Statement. The amount is included in Box 1, “Wages, tips, other compensation,” representing the total taxable income for federal income tax purposes. Additionally, the cost of the employer-provided group-term life insurance coverage over $50,000 is reported in Box 12 of Form W-2 with Code “C.”

This detailed reporting ensures that the employee’s tax liability accurately reflects all forms of compensation, including non-cash benefits like excess Group Term Life insurance. Understanding these entries on a pay stub and Form W-2 helps employees recognize how their overall compensation and tax obligations are calculated. Employers are responsible for correctly calculating and reporting these amounts to both the employee and the IRS.