Imputed Income
Imputed income is the value of non-cash compensation, fringe benefits, or services an employer provides to employees outside their regular wages or salary. Although employers may not be required to pay for these benefits, imputed income is subject to income tax and has to be reported to the Internal Revenue Service (IRS) accordingly.
Some employee benefits are tax-exempt and excluded from imputed income. For example, health insurance benefits, as are employer contributions to qualified retirement plans, are generally tax-exempt. The first $50,000 of group term life insurance an employer provides is tax-exempt and not considered imputed income. However, any amount provided over $50,000 is imputed income.
Imputed income is listed on an employee’s paycheck stub and W-2 form under “non-cash income.”
Imputed Income Examples
Any of these benefits can be considered imputed income:
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Gym membership: If the gym is not located at the business location and is available only to employees and their dependents, a gym membership would be imputed income.
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Company car: If a company provides an employee with a company car, the employee must pay taxes on the amount they would pay if they leased the same vehicle.
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Moving expense reimbursement: If an employer assists an employee with moving expenses such as moving van rental, realtor fees, relocation costs, and other moving expenses, it is considered imputed income.
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Educational assistance: Educational assistance over $5,250 per year is taxable as imputed income.
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Dependent care assistance: If under $5,000, dependent care assistance is tax-exempt. However, assistance over that amount is taxed as imputed income.
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Adoption assistance: If adoption assistance provided by an employer exceeds the annually adjusted amount, it is imputed income.
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Student loan debt forgiveness: If an employer pays off an employee’s student loan debt, the amount is reported as imputed income.
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Achievement awards: Achievement awards greater than $1,600 are taxed as imputed income.
Related Terms
Fringe Benefits
are additional compensations provided to employees that go beyond their regular salaries and wages. Some fringe benefits are tax-exempt, but others may be considered taxable income.
Non-Cash Compensation
refers to benefits an employer provides to employees in forms other than cash. This can include stock options, health insurance, or a company car. Because these benefits can be a significant part of an employee’s total compensation package, they may be considered imputed income.
Employee Benefits
consist of non-wage compensation an employer provides to employees in addition to their normal wages or salaries. Regular employee benefits may include health insurance, paid time off, retirement plans, life insurance, and other perks. Some employee benefits are tax-exempt, while others may be taxable.
De Minimis Benefits
are employee benefits that the IRS deems impractical for tracking because they are generally valued at below $100. Some examples of de minimis benefits include employee meals or snacks, occasional entertainment or sporting tickets, occasional picnics or parties for employees, and personal use of a printer or office copier.
Fair Market Value (FMV)
is the price at which a service or item would sell under normal market conditions. FMV determines the value of imputed income when employers provide non-cash benefits to employees.