Group Term Life Insurance Payroll: 2024 Guide
February 01, 2023
As an employer, you can provide several types of benefit packages to your staff. One of these benefits is called a GTL payroll, or a group term life insurance payroll.
Employers are obligated to oversee the welfare of their employees, while the latter commit themselves to fulfilling certain tasks and responsibilities for the company. Whether these benefits are in the form of insurance, paid time off, or bonuses, all employees are entitled to have them.
In this article, we’ll explore the definition of a group time life insurance payroll and show you how to calculate GTL payroll in a few easy steps!
So, let’s see what it’s all about!
What is Group Term Life Insurance?
Group term life insurance is a type of insurance designed to provide coverage to a group of individuals. This coverage also allows employees to add beneficiaries, but it will depend on the insurance plan provided by their employer.
GTL deductions are typically reflected in an employee’s paycheck. If employers pick basic coverage for their staff, they are to cover the majority of premiums.
Otherwise, if there are additional coverages that the employee would want to include, then the employee must cover premium add-ons.
A GTL coverage amounting to $50,000 and below does not have tax consequences. However,if it exceeds $50,000, then the coverage qualifies as imputed income. In this case, the imputed income amount will depend on the employee’s age.
Employers prefer GTL because it is not that costly. Also, they can base the amount of coverage on the annual salary of each employee.
How is Group Term Life Insurance Taxed?
Before we move forward with discussing what comprises a GTL taxable benefit, let’s talk about the exceptionsfirst.
Group term life insurance is not taxable if the total amount covered is $50,000 or less.
If so, the first $50,000 of GTL insurance coverage is then excluded from taxable income.
Also, there are specific criteria to help determine whether a GTL payroll should be considered a fringe benefit or not.
GTL payroll deductions are categorized as fringe benefits if:
- The employer covers the policy directly or indirectly.
- The insurance plan also offers a general death benefit. Note that the death benefit must not be included in the salaries of the employees.
- The employer covers insurance to at least 10 of their full-time employees within the year (also called the ‘10 Employee Rule’).
Now, what if the coverage is over $50,000?
This is where calculating group term life insurance taxes comes into play.
How to Calculate Premium Group Term Life Insurance
Depending on the employer’s discretion, group term life insurance amounting to more than $50,000 will be included in Medicare and Social Security Taxes (FICA). This is especially true if the employer is the one covering the additional amount beyond the $50,000 limit.
There are also two ways to go about getting GTL payroll coverage above $50,000. Employees have the choice of getting additional GTL coverage, but they will have to shoulder the costs for the additional plan.
In the event that the employee agrees to pay for additional GTL coverage, their payment should not be taxed. On the other hand, if both the employer and employee agree to split payment for the excess coverage, then only the employer’s share will be taxed.
Employers may also agree to have their employees extend their GTL coverage to their dependents or spouses. When this happens, the former can discount up to $2,000 and below and exclude it from their staff’s taxable income.
So how do we determine the taxable value of group term life insurance?
Firstly, the IRS has provided a table rate to help employers calculate the monthly cost of GTL insurance based on the age of each employee. Employees’ ages are divided into five-year brackets, while the costs for insurance are based on a $1,000 premium per employee.
Check out the table below for reference:
Cost per $1000 monthly protection
25 and below
25-29 years old
30-34 years old
35-39 years old
40-44 years old
45-49 years old
50-54 years old
55-59 years old
60-64 years old
65-69 years old
70 and above
Remember, determining the GTL payroll taxable benefit is based on how much GTL insurance you want to cover beyond the $50,000 limit. That said, the first $50,000 covered by the employer under the GTL insurance is not taxable.
Next, you need to calculate the following:
- Monthly costs per employee
- Amount to be covered beyond $50,000
- Yearly cost of coverage per employee
To calculate the monthly costs per employee, consult the IRS table for the rates. For example, one of your employees—let’s name her Amy—belongs to the 25-29 age bracket.
Based on the table, her insurance will cost $0.06 for every $1,000 in monthly premiums.
To calculate the amount to be covered in excess of the $50,000, well, that’s for you to determine. For example, you decide to cover $150,000 worth of coverage for your employees’ group term life insurance.
The excess amount will then be $100,000. Then, divide the excess of $100,000 by the monthly premium, which is $1,000.
It will yield the amount of $100.
To calculate the yearly cost of coverage per employee, all you have to do is multiply the excess amount covered by the corresponding rate from the IRS table. Amy’s insurance costs $0.06 for every $1,000 in monthly premiums.
Following the above equations will provide the following results:
- Amy’s group term life insurance monthly taxable income is $6 and $100 multiplied by $0.06 equals $6.
- Amy’s yearly taxable income for her GTL insurance is $72 and $6 multiplied by 12 is $72.
When it comes to reporting taxable income for each employee, it must be declared on either form:
- Form 941 (Employee Quarterly Federal Tax Return)
- Form 944 (Employer’s Annual Federal Tax Return)
- Form W-2 (Wage and Tax Statement)
Benefits & Downsides of Group Term Life Insurance
Like any other type of insurance, group term life insurance has its pros and cons.
- Relatively affordable. GTL payroll is easy to include by employers in their employee’s roster of benefits.
- Great for employees without any other insurance plans. Even startups can manage to sponsor a GTL payroll taxable benefit since it offers flexible rates.
- Effectively promotes employee retention. Employees appreciate it when their employers go out of their way to ensure their basic needs like health insurance and medical leaves are well accounted for.
- Great way to boost employee morale. By opting for GTL payroll, you show that you value your employees.
- Tax-free. Provided that the group term life insurance offeramounts to$50,000 and below, your GTL will be tax-free. It effectivelysaves costs on both the employer and employee’s part.
- Not biased towards employees. The IRS has provided and distributed rates based on employees’ ages.
- Employers own the policy. If you’re an employer, you can decide when compensation for group term life insurance stops.
- Resigned employees lose entitlement to GTL coverage. Not all employers offer to switch the group term policy into an individual one to help workers continue maximizing the said benefit.
- Premiums are significantly higher for younger and fit employees. While employees can choose to add more to their existing coverage, it might be more costly compared to the premiums of their older colleagues.
- Additional premiums may require a medical exam. Employees may be asked to take a medical exam if they want additional GTL premiums. This is to assess whether they are eligible for additional coverage. In most instances, employers prioritize staff with preexisting medical conditions over those who are relatively healthy and fit.
Employers are obligated to ensure their employees are properly compensated and provided with benefits that they can use in case of an emergency. Sponsoring group term life insurance coverage is an example.
If you plan to include this type of insurance in your employee’s benefits, take the time to discuss with them the pros and cons of GTL insurance. In doing so, your employees get to understand the advantages and exceptions of having a GTL reflected in their payroll.
Some employees might be willing to pay for additional coverage, while others may want to include their dependents. You have to take all these possibilities into consideration to ensure your staff gets to maximize the perks that come with group term life insurance.
- A group term life insurance (GTL) is a type of insurance that provides coverage to a group of individuals, as in a group of workers in a company.
- There is a $50,000 limitation to the amount of GTL coverage that an employer can sponsor.
- Only GTl coverages that exceed the $50,000 mark are taxable. Employees also have the choice to extend their GTL coverage to their spouse or dependents.
- The IRS has provided a table rate based on employee age to help employers calculate the group term life insurance per employee.
- A group term life insurance is excellent for its affordable premium rates and broad coverage.
- The coverage of a group term life insurance is typically based on the company’s decision.
Group Term Life Insurance FAQ
#1. What is GTL on my pay stub?
A GTL on your paystub means your employer covers the group term life insurance benefit. It is a type of fringe benefit that you get apart from your regular salary or wage.
#2. Is GTL a deduction or an earning?
A GTL on your payroll is a deduction because it is a type of benefit offered by your employer. It means your employer pays the premiums on your behalf. However, if your coverage exceeds $50,000, your GTL becomes a taxable benefit.
#3. Can I opt-out of GTL?
Opting out of a GTL primarily rests on the decision of your employer. A common example is when an employee leaves the company, coverage for their group term life insurance also stops. It is best to discuss your options and the terms of your GTL coverage with your employer.