What Is GTL on a Paystub and Why Is It Taxable?

Employees may notice “GTL” on their paystub, which stands for Group Term Life insurance. This common employer-provided benefit can affect an employee’s taxable income. Understanding GTL involves recognizing what it is and its financial implications.

What is Group Term Life Insurance

Group Term Life insurance provides coverage to multiple individuals under a single contract, typically through an employer. This type of insurance offers a death benefit to designated beneficiaries if the insured passes away while coverage is active. It provides financial protection for a specific period, usually for the duration of employment.

Employers often offer a base amount of GTL coverage at little or no direct cost. This makes GTL an accessible and affordable way for many individuals to obtain life insurance, as it generally does not require medical exams and is less expensive than individual policies.

Why GTL Appears on Your Paystub

Group Term Life insurance appears on a paystub due to tax regulations for employer-provided benefits. The Internal Revenue Service (IRS) categorizes the cost of employer-provided GTL coverage exceeding $50,000 as a taxable non-cash benefit, known as “imputed income” or “taxable GTL.”

Under Internal Revenue Code Section 79, the first $50,000 of employer-provided group term life insurance coverage is excluded from an employee’s gross income. Any coverage beyond this threshold is considered taxable income, even though the employee does not physically receive these funds. This imputed income is added to an employee’s gross wages for tax purposes and is subject to payroll taxes.

Calculating Taxable GTL

The calculation of taxable imputed income for Group Term Life insurance relies on a specific method provided by the IRS. The IRS mandates the use of its Uniform Premium Table (also known as IRS Table I) to determine the monthly cost of coverage exceeding the $50,000 exclusion. This table provides a cost per $1,000 of coverage, which varies based on the employee’s age.

To calculate the imputed income, the coverage amount over $50,000 is first determined. This excess amount is then divided by 1,000 and multiplied by the corresponding per-$1,000 monthly cost from IRS Table I for the employee’s age bracket. This monthly cost is then multiplied by the number of months the coverage was in effect during the year to arrive at the total annual imputed income. For example, if an employee has $75,000 in coverage, the taxable portion would be based on $25,000 ($75,000 – $50,000), calculated using their age-specific rate from Table I.

How GTL Affects Your Overall Compensation

The presence of Group Term Life insurance imputed income on a paystub has a direct effect on an employee’s overall compensation for tax purposes. While this imputed income increases an employee’s gross wages, it does not result in an increase in their net take-home pay. Instead, it leads to higher tax withholdings for federal income tax, Social Security, and Medicare taxes.

This taxable imputed income is reported on an employee’s annual Form W-2. It is typically included in Box 1, which represents “Wages, tips, other compensation.” Additionally, the specific amount of taxable GTL is often shown separately in Box 12 of the W-2 with code “C.” Despite the tax implications, employer-provided GTL remains a valuable benefit, offering financial security to employees and their beneficiaries, often at a lower cost than individual insurance options.