What is imputed income?

Imputed income refers to the value of non-cash employee benefits that team members receive as part of their taxable income. Some of these benefits, like providing health insurance for non-dependents or support for adoption processes, aren’t part of regular wages but are still taxable according to the IRS in the United States and HMRC in the United Kingdom).

How does imputed income impact taxes?

Imputed income increases a professional’s taxable income, which can result in higher taxes. Non-cash benefits—like life insurance over $50,000 or personal use of a company car—become part of their taxable wages, affecting federal income tax, Social Security, and Medicare taxes in the US. Employers calculate and report the value of these benefits on their team member’s W-2 forms.

What are fringe benefits?

Fringe benefits, or non-cash rewards, are extra perks people receive on top of their regular pay. Typical company perks include health insurance, gym memberships, and education assistance.

Should people report imputed income?

Yes, people must report imputed income because it’s part of their taxable earnings. Employers include imputed income on year-end forms, such as the W-2 in the US or P11D in the UK.

How is imputed income taxed?

Add imputed income to your team member’s gross wages, so it’s taxed together with regular earnings. However, employers don’t automatically withhold federal income taxes for imputed income, so people either request the withholding or pay taxes on the benefits in their annual tax returns.

Should you avoid imputed income?

HR teams can apply imputed income actively and strategically. Focus on understanding how imputed income impacts your people’s taxes so you can offer valuable perks without adding unnecessary tax burdens.

What is imputed income in insurance?

In insurance, imputed income typically refers to the taxable value of benefits like group-term life insurance or health insurance for non-dependents. When coverage exceeds specific limits, the excess amount is added to taxable income. This helps you account for the full value of the benefit in tax reporting.

What is imputed income on a paycheck?

Imputed income on a paycheck refers to non-cash benefits that combine with a team member’s gross wages for tax purposes. It won’t change the take-home pay but will increase taxable income.