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.
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.
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.
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.
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