What Is GTL on My Pay Stub & How Is It Taxed?
Decode the GTL entry on your pay stub. Learn about this common employer benefit and its impact on your taxable income.
GTL stands for Group-Term Life insurance, a benefit many employers offer. This article aims to clarify what GTL represents on your pay stub, how it is determined, and its implications for your taxable income. Understanding this entry can help you better comprehend your overall compensation and tax obligations.
Understanding Group-Term Life Insurance
Group-Term Life (GTL) insurance is a type of life insurance policy provided by an employer to its employees. This coverage is typically offered at no direct cost to the employee for a basic amount, or at a reduced rate. The benefit amount is often calculated as a multiple of an employee’s annual salary or as a flat sum for all eligible employees.
Unlike individual life insurance policies that an employee might purchase directly, GTL insurance covers a group of individuals under a single contract. It is “term” insurance, meaning it provides coverage for a specific period, usually while the individual is employed with the company. This type of insurance pays a death benefit to designated beneficiaries if the insured employee passes away while the policy is in effect.
Why It Appears on Your Pay Stub
The presence of “GTL” on your pay stub stems from specific Internal Revenue Service (IRS) regulations concerning employer-provided benefits. While group-term life insurance is a valuable benefit, the IRS considers the value of employer-provided coverage exceeding $50,000 to be a taxable, non-cash benefit to the employee. This value is referred to as “imputed income.”
Imputed income means that the value of this excess life insurance coverage is added to an employee’s gross income for tax purposes, even though no actual cash is received by the employee. The “GTL” line on your pay stub reflects this calculated imputed income amount. This is not a deduction for a premium you paid, but rather an addition to your taxable wages to account for the non-cash benefit received. This imputed income is specifically subject to Social Security and Medicare taxes, known as FICA taxes.
Calculating the Imputed Income
The method for calculating the imputed income for Group-Term Life insurance is standardized by the IRS. This calculation relies on the IRS Uniform Premium Table (IRS Table I), which provides a cost per $1,000 of coverage based on age brackets. The employee’s age as of the last day of the tax year is used for this determination.
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 cost per $1,000 from IRS Table I for the employee’s age bracket. For example, if an employee has $100,000 in coverage, the calculation applies to the $50,000 exceeding the tax-free limit.
Impact on Your Taxable Income
The GTL imputed income directly influences your taxable wages. While federal and state income taxes are generally not withheld directly from this imputed income, it is included in your total taxable income.
At the end of the year, this increased gross wage, including the GTL imputed income, will be reflected on your Form W-2. Specifically, it appears in Box 1 (Wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages). This inclusion can lead to slightly higher FICA tax withholdings, as these are applied to the imputed income.