Imputed income
Imputed income is the value of a noncash or employer-provided benefit added to an employee’s taxable compensation for one or more wage bases.
The amount raises taxable wages and the tax withheld without adding cash to the payment. So a pay statementPay statement (pay stub). A pay statement, also called a pay stub, is the per-payroll record showing how one payment was calculated, from gross pay to net pay.Click to open the term can show a higher gross and a lower net than the employee expected. Common sources include excess group-term life coverage, personal use of a company vehicle, and employer-paid relocation. Domestic partner health coverage counts where the partner is not a tax dependent. On Form W-2Form W-2. Form W-2 is the annual wage and tax statement you give employees and file with the Social Security Administration, reporting wages paid and taxes withheld.Click to open the term, imputed amounts raise boxes 1, 3, and 5 for the taxes they affect; excess group-term life also shows in box 12 with code C.
Why does imputed income lower net pay?
Taxes follow taxable wages, so a $100 imputed amount costs the employee only the tax on $100, withheld from regular earnings. Group-term life insurance generally creates imputed income for coverage over $50,000: the IRS monthly cost for each $1,000 of that excess, by year-end age, less what the employee paid. That amount is generally in Social Security and Medicare wages but not federal unemployment wages, and federal income tax withholding is optional. Losing year-to-date imputed amounts in a mid-year system change commonly leaves Form W-2 totals that will not reconcile.
- =Gross payCash earnings plus the imputed income line, usually labeled for the benefit
- −TaxesWithheld on taxable wages, which include the imputed amount
- −Offsetting lineOften removes the same amount, since the employee never receives the money
- =Net payLower by only the extra tax withheld
- Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits
- General Instructions for Forms W-2 and W-3 (2026)
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.