Imputed Income

What is Imputed Income?

Imputed Income also known as Fringe Benefits is the taxable value of non-cash benefits like company cars or gym memberships received by employees.

Employees must pay taxes on the monetary value of these benefits, even though they don't receive them in cash. While some benefits are tax-exempt, others count as imputed income. This system accurately reflects all compensation in tax calculations, affecting employees' gross taxable earnings without changing their actual cash salary.

Examples of Imputed Income

Imputed income encompasses various taxable non-cash benefits provided by employers, offering additional value to employees beyond their standard salary.

Company Car and Personal Use: The personal use of a company-provided vehicle, including commuting, is considered imputed income and is subject to taxation. This benefit is common for employees who need a vehicle for both personal and business purposes.

Gym Memberships: Many employers offer gym memberships as a part of employment benefits. These are considered imputed income and taxable, reflecting an investment in employee health that extends beyond the workplace.

Employer-provided Life Insurance: Life insurance coverage provided by an employer that exceeds a certain value (usually $50,000) counts as a Taxable Benefit. The excess value over this limit is taxable.

Education and Tuition Assistance: Employer-paid tuition assistance that exceeds $5,250 per year is taxable as imputed income. This benefit supports employees' continuing education and skill development.

Dependent Care Assistance: This becomes taxable when the value provided exceeds $5,000 per year. It's often used to support employees with childcare or eldercare responsibilities.

Adoption Assistance: Benefits provided for adoption-related expenses become taxable when they exceed annually adjusted limits, such as $14,890 in 2022. This assists employees in managing the considerable costs associated with adoption.

Moving Expense Reimbursement: If an employee receives reimbursements for moving expenses, this can count as imputed income, except for U.S. Armed Forces members moving under permanent change of station orders.

Employee Discounts and Perks: Discounts on products and services, especially from partner companies, may be taxable if they provide substantial savings, representing an indirect way of increasing an employee's earnings.

Other Fringe Benefits: High-value gifts from employers, such as gift cards and cash, along with non-work-related training (e.g., financial wellness programs) and health insurance for non-dependents, also constitute imputed income.

What Is Excluded from Imputed Income?

Health-Related Benefits: Health insurance for dependents and health savings accounts are not considered imputed income, which means the value of these benefits is exempt from taxation. This includes the portions paid by both employer and employee.

Insurance and Assistance Programs:

• Group Term Life Insurance: Coverage under $50,000 is excluded from imputed income, avoiding additional tax burdens for employees.
• Dependent Care Assistance: Benefits under $5,000 per year are also tax-exempt, supporting employees with dependent care needs without additional tax implications.
• Adoption Assistance: Benefits below annually adjusted amounts are exempt, facilitating adoption without the burden of increased taxable income.

Educational and Training Benefits:

• Education Assistance: Up to $5,250 per year for tuition or related expenses is not counted as imputed income, encouraging ongoing employee development.
• Tuition Reduction: For employees engaged in teaching or research activities, certain tuition reductions are excluded from taxable income.

Small or Occasional Gifts and Services:

• De Minimis Benefits: Small benefits like company shirts, birthday cakes, occasional meals, and use of the company photocopier are not considered imputed income due to their trivial value.
• Employer-provided Cellphones and Services: The personal use of a company cell phone and occasional meals provided by the employer fall into this category, enhancing employee convenience without tax consequences.

Retirement and Achievement Awards:

• Retirement Plan Contributions: Contributions to retirement plans, whether defined benefit or defined contribution, are not imputed income.
• Achievement Awards: Awards up to $1,600 in value are exempt, recognizing employee achievements without additional taxes.