Imputed Income

The financial value of certain non-cash benefits given to employees, contractors, or other workers is known as imputed income. Since true imputed income is subject to taxation, it must be disclosed on tax forms like the W-2 form as part of an employee's compensation. Benefits aren't always attributed to income. To assist businesses in determining whether the benefits they offer are considered imputed income or not, the IRS publishes comprehensive guidelines. We talk about those guidelines in this article starting with definition of imputed income.

Understanding What Is Imputed Income

The value of benefits that are not factored into salary is referred to as 'imputed income.' Even when the benefit isn't paid to the employee in cash, it is nonetheless taxed. This means the employee has to pay taxes on the imputed value of the membership. Employers use benefits like these to improve employee morale and strengthen their commitment. This approach can help build loyalty to the company and the employees' roles.

‍What Does Imputed Income Consist of?

The IRS lists various fringe benefits that count as imputed income. Some benefits are not allowed for specific periods.The benefits that are imputed income tax are listed below, along with any conditions or restrictions that can affect their imputed-income status.

• Term life insurance for groups (if above $50,000)
• Support for education (if more than $5,250 annually)
• Achievement prizes that qualify (if valued at more than $1,600)
• reduction in graduate-level tuition (if the staff member does not engage in teaching or research)
• Fitness incentives and gym memberships (if the gym is off-site and only accessible to employees and their dependents)
• Adoption aid (if greater than the $14,890 cap for 2022); this item only pertains to income tax withholding
• Moving expenditure reimbursement (with the exception of active duty personnel of the United States Armed Forces whose relocation is due to a permanent alteration as a result of a military order)
• Rebates for using a bicycle to commute
• Assistance for dependent care (if more than $5,000 annually)

Examples of Imputed Income

Many instances of imputed pay are included in the list above. Some are in between, but many are simple (counting as either exclusions or imputed income). Once specific requirements are satisfied, their income is either imputed or excluded. Here are some instances of these kinds of fringe benefits along with an explanation of when they qualify as taxable imputed income and when they don't.

Gym membership

MEmployers provide fitness benefits to their staff, such gym memberships, in an effort to increase worker morale and employee health. If an employee is given access to a gym that is not on the work premises and is only available to them, then owed income must be disclosed.

Achievement awards

For achievements like the length of employment with the company, many companies issue achievement awards in the form of cash, gift cards, coupons, gift certificates, or other financial equivalents. As long as the value of these is less than $1,600, they are not considered imputed income. Anything beyond this amount is subject to taxation and must be reported as imputed income.

Educational assistance

The amount of educational assistance may be removed as imputed income if it is offered for an undergraduate program and is $5,250 or less annually. This kind of graduate-level support is also available to staff members who teach or carry out professional research. Any aid or other graduate programs that exceed this cap must be declared as imputed income.