Imputed Income.  What, never heard of it – well, the IRS thinks you should already know.

Generally speaking, imputing income is a process that is triggered by taxable, non-cash compensation. In English, that generally means a company paid benefit, other than cash.

Imputed income is an animal of the IRS. Our tax friends needed a way of determining how to tax a service or benefit that employers provide for employees. Some services/benefits are considered exempt from taxes (such as the company paid portion of medical insurance premiums); while others are subject to taxes and must appear on the employee’s year end W2.

Life insurance – this is the most common imputed income scenario. If you provide life insurance in excess of $50,000; you will need to calculate imputed income for that portion of the premium.

Using the current IRS table (IRS Publication 15-B), calculate the taxable premium amount for coverage over $50,000. That cost is then added under a separate code as income to the employee. In addition, the same amount must be listed, under a separate code, as a deduction. By coding the imputed income in both the plus (income) and minus (deduction) columns, the amount is taxed and the employee’s paycheck remains in balance.