If you receive a fringe benefit from your employer, you may notice a line on your next paystub calling out “imputed income.”
What is imputed income? Read on to understand the basics of imputed income and which fringe benefits may be included.
What is imputed income?
Imputed income is a category of taxable income that an employee receives that isn’t part of salary or wages. You don’t receive imputed income as part of your net pay. Instead, imputed income is an amount that represents the value of taxable employee benefits that you have received.
Imputed income might include the value of a gift card you receive as part of an incentive program, the cost of a gym reimbursement from a health incentive plan or the fair market value of the use of a company car. Imputed income is taxable and is taxed as part of your regular income. In most cases, imputed income is exempt from federal income tax withholding, but you can typically elect to withhold taxes from your imputed income.
Some employee benefits, like health insurance, are exempt from income taxes and are not included as part of imputed income.
What are fringe benefits?
Fringe benefits are benefits that employers use to compensate employees beyond their regular wages. Often fringe benefits are used by employers as differentiators because they help attract and retain employees. Fringe benefits can include everything from health insurance, to laundry services, to reimbursement for gym memberships.
While some fringe benefits are given special treatment by the IRS, many fringe benefits are taxable and the value of these benefits is reported to the IRS as imputed income.
What are nontaxable fringe benefits?
Some fringe benefits are non-taxable because they are small or insignificant. These “de minimis” benefits include occasional, small employer gifts like company merchandise, company picnics, event tickets, or a birthday gift when their value is less than $100.
Examples of nontaxable fringe benefits include:
- Company-hosted events like picnics.
- Occasional gifts with a low fair-market value.
- Company merchandise like logo-imprinted clothing or swag like pens, keychains and water bottles.
- Tickets to movie theaters and sporting events if the yearly total is less than $100.
- Occasional personal use of company office resources, like a copy machine.
Examples of imputed income
If a fringe benefit you receive is not subject to a special rule exempting it from income and has a value greater than $100, its fair market value will be reported to the IRS as imputed income.
Here are some examples of benefits that may be included as part of imputed income:
- Personal use of a company car.
- Fitness incentives like gym memberships unrelated to your health insurance.
- Company giveaways and gifts with values greater than $100.
- Moving expense reimbursement.
- Benefits like educational assistance, adoption assistance or care assistance for dependents in excess of the tax-free amount.
What is excluded from imputed income?
Some employee benefits, such as health insurance, qualify for special treatment or are excluded from imputed income below a certain threshold. These benefits are given special treatment by the IRS, which allows employers to grant benefits to employees tax-free. This category of exempt benefits includes:
- Health insurance for yourself and your dependents.
- Health savings accounts (HSAs).
- Employee discounts up to 20% of the non-employee price.
- Free meals at a company cafeteria if provided for the convenience of the employer.
- Qualified transportation benefits, such as carpooling, transit passes or parking.
In addition, the value of some benefits is excluded under a specified amount. The value of a fringe benefit beyond the amount specified by the IRS is considered taxable and is included in imputed income. These benefits that have dollar-limited exclusions include:
- Dependent care assistance under $5,000
- Group term life insurance under $50,000
- Education assistance under $5,250
- Adoption assistance below $14,890 in 2022 (This amount is adjusted by the IRS annually.)
IRS Publication 15-B details which fringe benefits may be excluded from imputed income.