Imputed Income. What, never heard of it – well, the IRS thinks you should already know.
Generally speaking, imputing income is a process that is triggered by taxable, non-cash compensation. In English, that generally means a company paid benefit, other than cash.
Imputed income is an animal of the IRS. Our tax friends needed a way of determining how to tax a service or benefit that employers provide for employees. Some services/benefits are considered exempt from taxes (such as the company paid portion of medical insurance premiums); while others are subject to taxes and must appear on the employee’s year end W2.
Life insurance – this is the most common imputed income scenario. If you provide life insurance in excess of $50,000; you will need to calculate imputed income for that portion of the premium.
Using the current IRS table (IRS Publication 15-B), calculate the taxable premium amount for coverage over $50,000. That cost is then added under a separate code as income to the employee. In addition, the same amount must be listed, under a separate code, as a deduction. By coding the imputed income in both the plus (income) and minus (deduction) columns, the amount is taxed and the employee’s paycheck remains in balance.
Again, while this is the most common, it is not the only imputed income scenario. Other possible triggers include:
- Adoption assistance
- Dependent care assistance
- Educational assistance
- Employee discounts
- Employee stock options
- Employer-provided cell phones
If you have questions, or need help, give us a call.