What is Imputed Income?

While you may not have heard of the term “imputed income,” chances are that you might be receiving it from an employer. Imputed income is essentially non-cash goods or services that you receive from your employer as a form of income. It’s important to know how much imputed income you receive because it is taxable, which means it can come with certain tax implications. Here’s an overview of imputed income and how it works. 

What is considered imputed income? 

Imputed income is essentially any non-cash items or services that you receive from your employer. Imputed income is expressed as the cash value of the non-cash perks you receive at work. The total amount of imputed income is typically reported on an employee’s W-2 under “Wages, Tips and Other Compensation.” The more common examples of perks or “fringe benefits” that contribute to imputed income include: 

• Company vehicles: If you use a company car for work, this can be considered imputed income. However, only your personal use of the car is taxed as a fringe benefit. The amount taxed will depend on the fair market value of the car and the total miles driven for personal use compared to total miles driven that year. If you use a company car for personal use, you should actively log mileage and the purpose of each trip.  
• Gym memberships: Some companies give their employees free gym memberships to encourage wellness. This fringe benefit should be reported as income during tax time. This is true even if the gym membership is paid for through your employer-sponsored health insurance provider. If the gym is at the same location of the work property and is not only available to employees, then it is excluded from imputed income.  
• Education assistance: Some employers reimburse employees for higher education tuition, as long as the program of study is related to their area of work. If the amount granted to the employee exceeds $5,250, the excess will be considered taxable imputed income. 

What is not considered imputed income? 

Typically, things like company cell phones, meals, some employment discounts, accident benefits, awards worth less than $1,600 in value, and health savings accounts are not considered imputed income.  

How do I report imputed income? 

Your employer should withhold taxes on your imputed income and then report it on your W-2. If your employer does not withhold taxes from your imputed income, they are still responsible for reporting the income. This means you are responsible for paying the tax on the income at tax time. If you’re unsure about whether you currently receive any form of imputed income, you should seek help from a knowledgeable tax preparer. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations. 

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