Imputed income captures the value of regular non-cash perks or additional benefits employees receive, separate from their base salary. Even though these perks aren't paid out in cash, they hold a monetary value and are therefore considered part of an employee's income for tax purposes.

Examples of Imputed Income

The value of certain perks, called imputed income, is taxed based on their fair market value. This means the government considers these benefits a form of income even if they aren't paid in cash.

Here are some common examples of imputed income:

• Using a company car
• Employer-paid gym memberships
• Reimbursement for moving expenses
• Health insurance coverage for non-dependents (above a certain threshold)
• Cash gifts or gift cards from the employer (above a certain value)
• Adoption assistance exceeding the tax-exempt amount
• Employee discounts on products or services

Imputed income only includes some things!

Certain benefits you receive as an employee might be exempt from taxes, depending on your company's policies and the specific benefit itself. Companies typically consider the value of the benefit and any special tax treatments it qualifies for when determining if it counts towards imputed income.

For example, you generally won't have to pay taxes on:

• Health insurance for your dependents
• Adoption assistance that falls within the tax-free limit of
• Contributions to your health savings account
• Small gifts from your company, like birthday cakes or branded merchandise

What is the method for determining imputed income?

Figuring out imputed income isn't a one-size-fits-all process. Companies take different employee benefits and services into account when calculating it. Here's a breakdown of the five main steps involved:

1. Identifying the Benefit: First, they must determine which non-cash perks you receive count as imputed income according to tax laws.
2. Fair Market Value (FMV): Next, they estimate what the benefit would cost if you bought it yourself on the open market. This is the "fair market value" (FMV).
3. Employee Contributions: If you chip in any money towards the benefit, that amount gets subtracted from the FMV.
4. Tax Exclusions: Some benefits might have special tax rules or thresholds that reduce the taxable amount. These get factored in as well.
5. Calculating Imputed Income: Finally, after all the adjustments, they arrive at a final figure – your imputed income – which gets added to your regular taxable income.