What Is GTL on a Paycheck and How Is It Taxed?

When reviewing a paycheck, individuals might notice “GTL” listed among their earnings or deductions. This abbreviation refers to Group Term Life insurance, a common employee benefit provided by employers. Its presence on a paystub signals an Internal Revenue Service (IRS) tax rule is being applied. This rule addresses the taxable value of employer-provided insurance coverage, which can affect an employee’s tax liability. Understanding GTL clarifies why certain non-cash benefits influence an employee’s taxable income.

What Group Term Life Insurance Is

Group Term Life (GTL) insurance is a type of life insurance policy an employer offers to its employees as a benefit. This coverage is provided under a single contract for a group of individuals, making it more affordable than individual life insurance policies. The benefit provides a death payout to an employee’s beneficiaries if the employee dies while covered by the policy.

GTL plans determine the coverage amount as a multiple of an employee’s annual salary or as a fixed dollar amount, such as $50,000. This employer-sponsored benefit requires no medical examination for basic coverage, simplifying access to life insurance for many employees. Employers may pay the entire premium for a basic level of coverage, and employees can purchase additional coverage at their own expense at group rates. This insurance is term-based, providing coverage for a specific period, typically for the duration of employment.

The Imputed Income Rule

The appearance of GTL on a paycheck is due to Internal Revenue Code (IRC) Section 79. This section states that if an employer provides Group Term Life insurance coverage exceeding $50,000, the value above this amount is considered taxable income to the employee. This applies even if the employer pays the entire premium. The IRS considers this excess value a fringe benefit, a form of non-cash compensation.

This non-cash benefit is termed “imputed income.” Imputed income represents the monetary value of a non-cash benefit the IRS treats as taxable earnings. Although employees do not physically receive this amount in cash, its value is added to their gross income for tax purposes. The rule applies if the policy is carried directly or indirectly by the employer. This tax treatment ensures the economic benefit from employer-provided life insurance coverage is accounted for in an employee’s taxable income.

How Imputed Income is Calculated

The calculation of imputed income for Group Term Life insurance over $50,000 involves a specific method provided by the IRS. The IRS publishes a Uniform Premium Table, which assigns a cost per $1,000 of coverage based on the employee’s age. This table standardizes the benefit’s value for tax purposes, regardless of the actual premium paid by the employer or employee. The age used for the calculation is the employee’s age on the last day of the calendar year.

To determine the monthly imputed income, first, subtract the $50,000 tax-free exclusion from the total coverage amount. Then, divide the remaining amount by $1,000 to find the number of $1,000 units of coverage. Multiply this figure by the per-$1,000 cost corresponding to the employee’s age bracket in the IRS Uniform Premium Table. For example, if an employee is 45 years old and has $100,000 in employer-provided GTL coverage, the excess coverage is $50,000 ($100,000 – $50,000). If the Table 1 rate for ages 45-49 is $0.15 per $1,000, the monthly imputed income would be ($50,000 / $1,000) $0.15 = $7.50. This monthly amount is totaled for the year to arrive at the annual imputed income.

Impact on Your Paycheck and Taxes

The imputed income from Group Term Life insurance directly impacts an employee’s paycheck and tax obligations. Although a non-cash benefit, this calculated amount is added to an employee’s gross taxable wages. This increase in gross wages means the employee will incur higher payroll taxes, specifically for Social Security and Medicare. Federal income tax withholding may also increase as a result of the higher taxable income.

This imputed income is not a deduction from an employee’s pay, but rather an addition to their reportable income. Employers must report this amount on the employee’s Form W-2. The taxable cost of Group Term Life insurance over $50,000 is reported in Box 12 of Form W-2 with Code “C.” This inclusion ensures the employee’s taxable income accurately reflects the value of all compensation received, including non-cash benefits.