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

When examining a paystub, an entry labeled “GTL” often appears, which stands for Group Term Life insurance. This designation indicates a taxable component stemming from employer-provided life insurance coverage. A portion of this benefit is subject to taxation, affecting an employee’s take-home pay.

Group Term Life Insurance Explained

Group term life insurance is a common employee benefit employers offer. It provides life insurance coverage for a specific period while employed. Employers typically pay the premiums, making it an attractive benefit.

This type of policy is designed to cover a group of individuals, such as all eligible employees, rather than individual policyholders. The coverage amount for each employee is often determined by a formula, which can be based on factors like salary, years of service, or a flat amount. This widespread offering highlights its role as a standard component of many compensation packages.

The Imputed Income Rule

The IRS governs the taxability of employer-provided group term life insurance. Under Internal Revenue Code Section 79, the cost of employer-provided group term life insurance coverage exceeding $50,000 is considered taxable income. The first $50,000 of coverage is generally tax-exempt.

This rule prevents employers from offering unlimited tax-free benefits, ensuring fairness in compensation taxation. This taxable amount, not received as cash, is called “imputed income.” It is the value of a non-cash benefit treated as cash income for tax purposes.

How Imputed Income Is Calculated

Imputed income for group term life insurance is calculated using a standardized IRS approach. The IRS provides a uniform premium table (e.g., in Publication 15-B) to determine the cost of coverage exceeding $50,000. This table provides a monthly cost per $1,000 of coverage based on five-year age brackets.

To calculate, employers determine coverage exceeding $50,000. This excess is divided by $1,000 to find “units,” then multiplied by the rate from the IRS table based on the employee’s age. For instance, if an employee has $100,000 of coverage and is in an age bracket with a monthly rate of $0.15 per $1,000, the calculation would involve the $50,000 excess ($100,000 – $50,000). This $50,000 excess would be 50 units ($50,000 / $1,000), resulting in $7.50 of monthly imputed income (50 units $0.15). This monthly amount is then totaled for the year to determine the annual imputed income.

Paystub Reporting and Tax Withholding

The calculated imputed income, while a taxable benefit, is non-cash income, not received directly in their paycheck. Instead, this imputed income is added to the employee’s gross wages for tax calculation, increasing total taxable income without additional cash disbursement.

Because it increases taxable income, various taxes are withheld based on this imputed amount. These include Social Security (FICA), Medicare (FICA), federal income tax, and potentially state and local income taxes. Employers must withhold FICA taxes, but federal income tax withholding is often optional, though the employee remains liable. Since it’s non-cash, taxes withheld reduce the employee’s net pay. On the annual Form W-2, this imputed income is reported in Box 1, Box 3, Box 5, and specifically in Box 12 with Code C.