Imputed Income
Imputed income is any taxable non-cash compensation an employee receives. The imputed income is considered a "fringe" benefit. The term encompasses any taxable addition to an employee's regular salary. Because the benefit was received in another form, the imputed income isn't a part of the net income. Unless specified, the imputed income becomes part of their gross income instead. There is a section in the W-2 tax form reserved for imputed income.Â
What Taxes Apply to Imputed Income?
Social Security and Medicare tax are usually applied to imputed income. In most cases, imputed income isn't subject to federal income tax. The employee can choose to withhold federal income tax from their imputed pay. Another option is to pay the amount due while filing their tax return.Â
Examples of Imputed Income
Employers offer many imputed income options. Group term life insurance of more than $50 00 is one of the most frequent benefits. Adding a domestic partner or dependant to a private health insurance policy is another popular option. Other examples of imputed income include:
- Adoption assistance over the non-taxable amount
- Educational assistance over the non-taxable amount
- Personal use of a company vehicle
- Gym membership
- Employee discounts
- Reimbursement of moving expenses
What is Excluded from Imputed Income?
An employee may receive benefits that do not qualify for imputed income like:
- Health insurance for a domestic partner or dependant below the non-taxable amount
- Adoption assistance below the non-taxable amount
- Educational assistance below the non-taxable amount
- Group term life insurance below $50 000
- Health savings accounts
- Use of a company vehicle for work commitment
- Low market value employer gifts like moving tickets, branded company t-shirts, birthday gifts, etc.
The employee doesn't have to file for taxes on these benefits.Â
How to Distinguish Imputed from Non-Imputed (de minimis) Income?
The IRS's Fringe Benefit Guide is the go-to resource for the latest information on taxable imputed income.
Related terms
SDI Tax
SDI tax is short for State Disability Insurance tax. A few select states have implemented this payroll tax. SDI tax money collected goes into a state fund. This fund is set up to support individuals who can no longer work due to disability, which can be either physical or mental disability unrelated to their profession.
Retro Pay
Retro pay is a form of compensation added to a paycheck to cover missing monies from a previous pay period. Back pay is monies owed for one or many complete pay periods that are missing. Retro pay is usually paid within one pay period of the mistake.
Employee Turnover
Employee turnover refers to the total number of employees who leave a company over a certain period, generally one year. For example, those employees might have chosen to leave of their own accord, been fired, or been laid off.
Direct Reports
Direct Reports describe subordinates or employees who report directly to a superior in an organizational hierarchy. Often, the latter could be a team leader, supervisor, or manager. Superiors have to monitor and assign tasks to their direct reports.Â