What Is GTL on a Paycheck and How Is It Taxed?
Demystify the GTL entry on your paycheck. Learn how this non-cash benefit affects your taxable income and W-2 reporting.
Group Term Life (GTL) insurance on a paycheck is an employer-provided benefit with specific tax implications. Understanding GTL and its tax treatment is important for interpreting your earnings statement. This article clarifies GTL’s nature and its impact on your tax situation.
Understanding Group Term Life Insurance
Group Term Life (GTL) insurance covers a group of individuals, typically employees. Employers provide this benefit as part of compensation, offering financial protection to beneficiaries. This coverage provides a death benefit for a defined “term.” Unlike individual policies, GTL is issued under a single contract to the employer, who extends coverage to eligible employees.
GTL is often more affordable than individual policies, and employees may not need a medical examination. Coverage amounts are frequently tied to an employee’s salary, with employers typically paying most or all premiums for a base amount. While offering a basic safety net, GTL coverage can be limited and does not build cash value, unlike permanent life insurance.
Why GTL Appears on Your Paycheck
Group Term Life (GTL) insurance appears on your paycheck due to “imputed income.” This is the value of a non-cash benefit the IRS considers taxable, even if you don’t receive cash. Internal Revenue Code Section 79 dictates specific rules for employer-provided GTL taxability.
The first $50,000 of employer-provided GTL coverage is excluded from an employee’s gross income. If coverage exceeds $50,000, the cost of the excess is a taxable benefit. This excess is treated as imputed income, added to an employee’s taxable wages for reporting. This non-cash benefit is accounted for on your paycheck.
Calculating the Taxable Amount
Calculating taxable imputed income for Group Term Life insurance follows IRS guidelines. The IRS does not use the actual premium an employer pays. Instead, it uses a standardized rate table, the IRS Uniform Premium Table, to determine the value of coverage exceeding $50,000. This table provides a cost per $1,000 of coverage based on the employee’s age.
To calculate the monthly taxable amount, determine the coverage exceeding $50,000. This excess is divided by $1,000 and multiplied by the applicable rate from the Uniform Premium Table based on the employee’s age. The employee’s age as of the last day of the tax year is used. Any after-tax contributions an employee makes reduce this imputed income. The total monthly cost is then multiplied by the number of months coverage was in force to arrive at the annual imputed income.
How GTL Affects Your Taxes and W-2
Imputed income from Group Term Life insurance impacts an employee’s tax obligations. This non-cash amount is added to your gross taxable wages. This can lead to increased withholding for federal income tax, Social Security (FICA), and Medicare taxes. Though not received as cash, it contributes to the total income on which these taxes are calculated.
On your annual Form W-2, GTL imputed income is reported as part of your total wages. It is included in Box 1, “Wages, tips, other compensation.” This amount is also identified in Box 12 of the W-2 with code “C.” This reporting ensures the IRS is aware of the taxable benefit for your income tax return.