Imputed Income

What Is Imputed Income?

Imputed income is the taxable amount of non-monetary benefits or services an employer provides. Employees, in their turn, are obliged to account for such benefits as taxable income. Those benefits can include car allowances, insurance premiums, and even company assets. Fundamentally, imputed income is the amount determined to be declared for taxation and assigned to the value of these benefits even though they are not given as cash payments.

To illustrate the concept is when an employee is provided a company car for work and personal use the IRS might consider a certain percent of the car's value as imputed income and subject it to taxation. Also, in the same vein, when an employer provides lodging to an employee at below-market prices, the gap between market value and what the employee pays is viewed as an imputed income.

Example

An illustrative case of imputed income is an employee using a company car for personal reasons. The IRS considers the personal-use portion of the car's value provided by the employer as an imputed income.

For instance, one of the employees might be delivered a car that costs the company $30,000 annually. For the business, if the employee uses the car for personal errands or uses it as a commuter, the IRS will calculate the fair market value for that portion and include it as imputed income on the employee's tax return. This imputed income - just like the regular – is taxed as well.

Employee allowances for personal use are usually determined by the bosses according to IRS standards such as the fair market value method or the cents-per-mile method. It is fundamental for employers and employees to allow detailed tracing and reporting of imputed income to avoid tax fraud.