What Is the Purpose of an EEGTL Tax?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

If you've recently scrutinized your paycheck, you may have noticed a novel type of payroll tax: the so-called "EEGTL tax." If you're hit with this tax during a given pay period, you'll see a notation on your full pay stub. Depending upon the formatting of your paycheck, the EEGTL line will probably appear just below the lines that detail your Social Security and Medicare tax outlays. It's possible that you'll work for your entire life without ever seeing such a notation. Even if you do come across an EEGTL tax at some point, the hit to your paycheck is liable to be quite small.

In fact, the full amount of any EEGTL tax that you're asked to pay is likely to be refunded to you in a subsequent paycheck. Under the terms of the IRS's sprawling Section 125 regulations, EEGTL stands for "Employee Group Term Life Insurance." In other words, EEGTL is one of the fringe benefits that Section 125 permits employers to provide for their full-time employees. If you're enrolled in a group term life insurance plan through your employer, you pay a portion of your weekly pre-tax income towards this plan's premiums. This payment is known as your "EEGTL contribution."

Since EEGTL contributions are always made from pre-tax earnings, they're not subject to regular taxation. As such, most "EEGTL taxes" are simply clerical errors that can easily be corrected. If you see such a tax on your pay stub, you should contact your company's payroll department or your division's human resources specialist to report the matter. Once the appropriate authorities have cleared up the mistake, you'll see a credit for the full amount of the tax on a subsequent pay stub.

However, there are certain situations in which you might be required to pay EEGTL tax on an ongoing basis. Under Section 125, the IRS permits employers to offer tax-free group term life insurance policies that carry death benefits of up to $50,000. Since higher benefit amounts are subject to taxation, most employees don't take out bigger policies. If you've recently bucked this trend and added coverage to your personal employer-sponsored term life insurance plan, you'll be required to pay income taxes on the corresponding portion of your EEGTL contribution. If you increased your policy's death benefit to $100,000, 50 percent of your subsequent EEGTL contributions will be taxed as regular income. In this case, your EEGTL tax won't be refunded.

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