Group Term Life Insurance (GTL) is a type of life insurance that an employer provides to employees as a benefit. It usually covers a set amount of life insurance — often $50,000, and is typically offered at no cost to the employee.
If coverage exceeds $50,000, the extra amount is considered imputed income, which means it’s taxable and included in payroll reporting. This ensures that YTD tax calculations are accurate and employees’ pay stubs reflect all taxable benefits.
How Group Term Life Insurance Works
- Employers provide coverage for employees as part of benefits packages.
- The first $50,000 is generally tax-free.
- Coverage above $50,000 counts as imputed income and is taxable.
- Imputed income is calculated based on IRS tables and added to payroll.
- This income is included on W-2 forms but not paid out as cash.
You can show this on pay stubs alongside other benefits, such as post-tax deductions or 401k contributions, using our Free Paystub Generator.
Payroll & Benefits Considerations
GTL coverage affects payroll calculations just like other benefits. If your company also handles perks like adoption assistance or tracks employee taxes, the imputed income should be correctly included to keep multi-state payroll compliant. Accurate reporting ensures smooth year-end processes and avoids discrepancies on W-2s.
Frequently Asked Questions about Group Term Life Insurance
Q1. Who pays tax on imputed income from GTL?
Employees pay tax on the portion exceeding $50,000 because it counts as taxable wages.
Q2. How is imputed income calculated?
Employers use IRS-provided tables based on age and excess coverage to determine the taxable amount.
Q3. Does GTL imputed income show on pay stubs?
Yes. With the Free Paystub Generator, you can include the imputed income in the taxable wages section.
Q4. Is all GTL coverage taxable?
No. Only the coverage above $50,000 is treated as imputed income.
Q5. Can employers offer different coverage amounts?
Yes. Coverage amounts can vary by employee role or tenure, but only the portion over $50,000 is taxable.
