Imputed Income

What is imputed income?

Imputed income refers to the value of non-cash benefits or perks an employer provides to their employees. Although these benefits lack direct monetary value, the IRS considers them as taxable income.

Imputed income helps maintain fairness by assigning a value to non-monetary benefits for tax purposes.

What are some common examples of imputed income?

Here are some common examples:

• Employer-provided life insurance: If the coverage exceeds $50,000.
• Personal use of Company Car: Value attributed to personal use.
• Dependent care assistance: Benefit surpassing the threshold limit.
• Gym memberships: Offered as part of a wellness program.
• Housing allowance: Value of employer-provided housing or allowances.

How do you calculate imputed income?

Here’s a step-by-step guide to calculate imputed income:

1. Identify non-cash benefits: Make a list of all the non-cash benefits you receive, such as company-provided life insurance and personal use of the company vehicle.
2. Determine the FMV (Fair Market Value): Assess the FMV or the market price of each benefit you receive from your employer.
3. Calculate the imputed income for individual benefits: Calculate the imputed income of individual benefits by prorating the value based on your share of benefits usage.
4. Add all the individual imputed income: Add up the imputed income to arrive at the total imputed income.
5. Include in taxable wages: Add the total imputed income to your gross wages and subject it to tax compliance.
6. Report on W-2 Form: Ensure this amount is reported on your W-2 form to avoid tax liabilities.

Let’s understand this with an example scenario.

Suppose X, aged 40, works for AB Industries and receives the following benefits:

• Employer-provided life insurance: $200,000 coverage.
• Personal use of company car: The annual lease of the car is $10,000, with 30% personal use.
• Employer-paid gym membership: Annual fee of $800.
• Housing allowance: $15,000 annually.

What is X’s imputed income?

Let’s calculate it below:

1. Employer-provided life insurance:

IRS allows tax-exempt up to $50,000 annually.

So, taxable amount = $200,000 – $50,000 = $150,000.

According to IRS Table 1, the cost per $1,000 of protection for a 40-year-old is $0.10 per month.

Annual imputed income = 150,000/1,000*0.10 = $180.

2. Personal use of Company Car:

Annual lease value of the car = $10,000

Percentage of personal use = 30%

Annual Imputed income = 10,000*30% = $3,000

3. Employer-paid Wellness Package:

Annual membership fee = $800.

Annual imputed income = 800.

4. Housing Allowance:

Annual allowance = $15,000

Annual imputed income = 15,000

Thus, adding the individual imputed income, we get:

Total annual imputed income = 180+3,000+800+15,000 = $18,900.

Thus, X’s total imputed income of $18,900 will be added to their gross wages and reported on their W-2 form.

In a nutshell, imputed income ensures accurate monetary and non-monetary employee compensation reporting for tax compliance and fair payroll practices.