What is imputed income?

Imputed income is the value of non-monetary compensation given to employees in the form of fringe benefits. This income is added to an employee’s gross wages so employment taxes can be withheld. It’s not included in an employee’s net pay since the benefit was already given in a non-monetary form.

But because the value of a service or benefit was provided by employers to employees, it must be treated as income, and therefore be reported and taxed, unless specifically exempt.

What are some examples of imputed income?

Some examples include:

  • Moving expense reimbursements
  • Gym memberships and fitness incentives
  • Personal use of a company car
  • Educational assistance and tuition reduction
  • Employee discounts

Imputed income can also be more advanced, including care assistance for dependents exceeding the tax-free amount, or adoption assistance exceeding the excluded amount.

How do I report it for my employees?

It’s subject to employment taxes so you must report it on each employee’s W-2 form. Because of that, you must track the value of each employee’s imputed income during the year just like you do with regular wages.

Pro tip:

Make sure your CPA or payroll provider can accurately handle and calculate fringe benefits along with imputed pay.

This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.