What Is GTL on a Pay Stub and Why Is It Taxable?

Reviewing a pay stub can often present a confusing array of acronyms and numerical entries. Understanding each line item on a pay stub is important for managing personal finances and ensuring accuracy. Every deduction and reported amount plays a role in an individual’s overall compensation and tax obligations. Discerning the meaning behind these entries helps in comprehending how earnings translate into take-home pay.

Understanding Group Term Life Insurance

Group Term Life (GTL) insurance is a type of life insurance policy employers frequently offer to their employees as part of a benefits package. This insurance provides coverage for a specific period, making it “term” insurance, rather than permanent coverage. Its “group” nature means it covers multiple individuals under a single master policy held by the employer. Employees typically do not undergo individual underwriting or medical exams, which makes it accessible.

Employers often pay all or a portion of the premiums for basic GTL coverage, providing a valuable benefit to their workforce. The amount of coverage is frequently tied to an employee’s annual salary or a flat amount. This type of insurance is generally more affordable than individual term life policies due to the group rate.

Why GTL Appears on Your Pay Stub

Group Term Life insurance appears on a pay stub due to the concept of “imputed income,” as defined by the Internal Revenue Service (IRS). Even though employees do not receive cash, the IRS considers the value of employer-provided GTL coverage exceeding $50,000 as a non-cash taxable benefit. This threshold is set by Internal Revenue Code Section 79. The value above this $50,000 limit is added to an employee’s gross income for tax calculation purposes.

This “imputed income” means the employee is taxed as if they received that additional amount in cash, even though it is simply the value of the insurance benefit. Consequently, this non-cash benefit increases an employee’s taxable wages, influencing the amount of taxes withheld from their paycheck. While federal income tax withholding is generally not applied to this imputed income, it is subject to Social Security and Medicare taxes, often referred to as FICA taxes.

Calculating Taxable GTL Income

The calculation of taxable imputed income for Group Term Life insurance involves specific steps outlined by the IRS. The first $50,000 of employer-provided GTL coverage is excluded from an employee’s taxable income. For any coverage amount exceeding this $50,000 threshold, the value is determined using the IRS Uniform Premium Table, also known as Section 79 Table I. This table provides a per-$1,000 cost based on the employee’s age at the end of the calendar year.

To calculate the monthly imputed income, the coverage amount exceeding $50,000 is first determined. This excess amount is then divided by $1,000 and multiplied by the corresponding per-$1,000 rate from the IRS Table I for the employee’s age bracket. For example, if an employee is 46 years old, the IRS Table I rate for their age bracket is $0.15 per $1,000 of coverage per month. If this employee has $100,000 in GTL coverage, the excess coverage is $50,000 ($100,000 – $50,000).

The calculation would be ($50,000 / $1,000) $0.15 = $7.50 per month. This monthly imputed income is then multiplied by the number of months the coverage was active during the year to arrive at the annual taxable amount. This calculated amount is added to the employee’s taxable wages on their W-2 form, affecting their overall tax liability for the year.