What is imputed income?
At a Glance:
Imputed income is income attributed to any taxable non-cash benefit or income an employee gets that isn’t part of their normal taxable wages. Examples may include a company car, company trips, or sports tickets given to you by your employer, moving expense reimbursements, free gym membership, or a slew of other employee benefits. Imputed income earnings have specific tax implications to keep in mind, which we’ll outline below along with clarification about the imputed income meaning.
If you’re an employee who gets certain types of “fringe benefits” – or non-cash items or services that are taxable – from your employer, there’s a specific term for the income derived from it… It’s called imputed income. It’s the cash value equivalency of non-cash benefits received by W-2 employees.
These extras at work can be a great perk, but there are imputed income tax implications to be aware of. Read on as we outline examples of imputed income and how imputed income affects your tax return.
What are examples of perks that can generate imputed income?
There are many different types of fringe benefits that give rise to imputed income. Common imputed wages that don’t come with a limit or restrictions are:
If you’re frequently on the road for your job, it’s fairly common to receive a company car or van that you use for both personal or business purposes. There are specific rules around how your company will impute income on the vehicle.
Employee discounts & perks
Some companies offer employees extra discounts on goods or services from partner companies. These perks could give rise to imputed income.
Many big companies offer gym memberships to help foster employee health – these memberships fall into the category of imputed income.
Moving expense reimbursement
If you move for a job, you’ll likely tally the expenses incurred along the way: moving van rental, relocation costs, realtor fees, and other moving expenses.
Some other examples of items that give rise to imputed income with specific limits are:
Generally, adoption assistance over $15,950 per child (for 2023) gives rise to imputed income. Find more information about the tax implications of adoptive children for potential parents.
Your company could offer dependent care for your children or other dependents. (Dependent care exceeding $5,000 is taxed as imputed income.)
Group-term life insurance
Group-term life insurance of more than $50,000 is taxed as imputed income.
Educational assistance and tuition
Educational assistance (where companies compensate employees for tuition at higher learning institutions) exceeding $5,250 is taxed as imputed income.
Some employers (commonly health care institutions) will pay off student loan debt of their employees.
Flexible spending accounts and health savings accounts aren’t classified as imputed income.
How does imputed income affect my federal tax return?
If you’re wondering what the imputed income tax implications are, it depends on two things: the type of benefit and the amount.
Some benefits are considered de minimis. A de minimis benefit is an employee benefit that Internal Revenue Service (IRS) regulations deem administratively impractical to keep track of and valued at under $100. Examples of what the IRS considers de minimis benefits are:
· Employee snacks or meals
· Employee gifts with low fair-market value
· Employer-branded apparel or items
· Flowers, books, or fruit provided under special circumstances
· Occasional sporting or entertainment tickets
· Occasional parties or picnics for employees
· Personal use of office copier or printer
If you’re questioning why imputed income is on your pay stub, there’s a reason for it. For non-de minimis items, your employer should report it on your W-2 form, along with your standard wages.
Tax is computed on imputed income from taxable non-de minimis benefits. You and your employer will pay FICA tax, which covers Social Security and Medicare contributions, on most items of imputed income. Taxable Imputed income is grouped together with your normal taxable income, but only if the benefit qualifies. As such, qualifying benefits are taxed at your normal federal income tax rates.
unless the benefit value exceeds $1 million. In this case the tax rate is 37%.
In rare cases, your employer may elect to withhold a flat supplemental wage rate of 22% on the benefit’s value.
And if you’re wondering how to calculate imputed income – look at your pay stub. There is a special area that lists out non-cash income.
Consult an income tax professional
Understanding issues related to imputed income taxes can be nuanced, which is why we’re here to support you. H&R Block tax pros can help you navigate every tax situation, including how to report imputed income for federal income tax purposes.
We’re here for you. You can rely on H&R Block whether you file taxes online, or with an H&R Block tax pro.
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