Imputed Income is the value assigned by tax authorities to certain non-cash benefits or perks an employee receives from their employer, which are considered taxable income even though the employee does not receive actual cash. Examples include the personal use of a company car, health benefits paid by the employer, or employer-paid life insurance premiums above a certain amount. Imputed income increases an employee’s taxable wages and is subject to income and payroll taxes.
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Key Facts
- Definition: Non-cash benefits valued and treated as taxable income.
- Examples: Personal use of company vehicles, group-term life insurance over $50,000, employer-paid gym memberships.
- Taxable: Subject to federal income tax and often Social Security and Medicare taxes.
- Reporting: Employers must include imputed income on employees’ W-2 forms.
- Purpose: Ensures fair taxation of all economic benefits, not just cash wages.
1. What is imputed income?
It’s the taxable value assigned to non-cash benefits provided by an employer.
2. Why is imputed income taxable?
Because the IRS considers these benefits as part of an employee’s compensation.
3. What are common examples of imputed income?
Company car personal use, employer-paid life insurance premiums over $50,000, and some fringe benefits.
4. How is imputed income reported?
Employers include it on the employee’s W-2 form as part of taxable wages.
5. Does imputed income affect payroll taxes?
Yes, it typically increases wages subject to Social Security and Medicare taxes.
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