GTL (Group Term Life) on Paycheck
Your paycheck and pay stubs contain a variety of information about your earnings and the amounts deducted by your employer, such as taxes and insurance coverage. One thing you might notice is group term life insurance, abbreviated GTL. If you see GTL or another reference to group term life on your paycheck, it means it's part of your employee benefits package. Though your employer may pay the insurance premiums, you may owe tax on it depending on the amount of coverage you receive.
What Is Group Term Life Insurance?
Group term life insurance is exactly what it sounds like: a policy that covers a group of people. This type of life insurance is frequently included in employee benefit packages.
You can select one or more beneficiaries, as with other types of life insurance. Your employer's coverage may be a multiple of your annual salary, such as one or two times what you make. You may also be able to purchase additional coverage at your own expense.
Your coverage is not permanent because this is term life insurance. Instead, it remains in effect for as long as you work for that employer or for the policy's specified term. If you decide to leave your job, you may be able to convert to an individual term life insurance policy.
How Group Term Life Insurance Is Taxed
Up to a certain amount, group term life insurance is tax-free for employees. In particular, if the excess amount of employer-provided coverage exceeds $50,000, the excess amount is considered a non-cash fringe benefit, and the premiums for that additional coverage become taxable income for the employee.
If an employer provides group term life insurance to an employee's spouse or dependents, there may be tax implications. If the coverage amount is $2,000 or less, it is not taxable to the employee. However, premiums for coverage for spouses or dependents in excess of that amount may be treated as taxable income for the employee. If the coverage exceeds $2,000, the entire premium is considered taxable.
The taxable benefit for group term life insurance is the amount shown on your paycheck or pay stub.
When you get your W-2 form from your employer at the end of the year, it will include the total cost of any group insurance you received that was more than $50,000 and thus taxable. This amount will appear in box 12c of your W-2 and will be deducted from your income in boxes 1, 3, and 5.
How Your Taxable Premiums Are Calculated
In "Publication 15-B: Employer's Tax Guide to Fringe Benefits," the IRS includes a table that employers can use to calculate the cost of excess coverage based on the worker's age.
If you're 45 years old, your premiums would be calculated at 15 cents per month (or $1.80 per year) for every $1,000 in coverage. The first $50,000 in coverage is not taxed, so if you had $200,000 in total coverage, you would be taxed on the cost of $150,000 in coverage, or $270 for the entire year ($1.80 x $150,000).
However, you may have already paid a portion of that cost through payroll deductions. If you paid a total of $100 over the course of the year, for example, only the remaining $170 would be included in your taxable income.
Group Term Life Insurance Pros and Cons
To attract and retain talent, group term life insurance can be included as part of an employee benefits package. There are benefits and drawbacks to having this type of coverage provided by your employer.
Pros
- It is guaranteed, which makes it easier to obtain even if you are older or in poor health.
- It may be less expensive than purchasing a life insurance policy on your own, especially if your employer pays a portion of the premiums.
- If you don't have any other life insurance, having term life insurance at work can provide some financial security.
Cons
- Any group term life insurance premiums in excess of $50,000 are taxable income.
- If you have a family or other financial dependents, the non-taxable amount of $50,000 in life insurance may not be enough.
- You cannot take it with you if you leave or are fired from your job.
Frequently Asked Questions
Why Is GTL on My Paycheck?
GTL stands for group term life insurance, which is available through your employer, who also pays the life insurance premiums.
What Does GTL Mean in Benefits?
Group life insurance (GTL) is a type of term life insurance that is typically provided by the employer tax-free up to $50,000.
Is GTL an Earning or Deduction?
On your pay stub, group term life insurance is referred to as a non-cash earning.
What Taxes Are GTL Subject To?
After the first $50,000, group term life insurance is taxed.
Can I Opt Out of Group Term Life Insurance?
Some employers permit employees to opt out of group term life insurance, while others do not. Opting out of the insurance may not make sense because it is provided at no cost to the employee.
The Bottom Line
If your employer provides group term life insurance, you will not be taxed on the first $50,000 of coverage, so there is no reason not to take advantage of it. If you require more insurance, adding to your employer's coverage may necessitate paying some tax, but it may still be a relatively inexpensive way to obtain the coverage you require.