What is Imputed Income?
Imputed income is a calculation that attempts to replicate the compensation and other benefits that an employee would have received if paid a full salary.
Imputed income is used in income tax calculations and is one of the types of non-wage compensation used by companies when calculating their required minimum distributions (RMDs) from qualified retirement plans.
The idea of imputed income is important because it allows for more accurate measurement of an individual's true economic status. By including imputed income in the calculation of someone's total income, we are able to get a more complete picture of their financial well-being. This is especially important when considering factors such as poverty and inequality.
In the example of the company car, employees would have to pay taxes on the amount it would cost to lease that same car. Some benefits employees receive are excluded and tax-exempt, such as health insurance or meals.
What Are Examples of Imputed Income?
Imputed income is income that is declared by a company or nonprofit that is not required to be included in its financial statements.
For example, if a company owns an office building, but the building is not used to generate any income, then the company cannot include the building in its income statement. However, the company would still need to account for any costs or expenses associated with the building in its balance sheet or income statement.
What Is Excluded from Imputed Income?
In general, excluded benefits are those that are below a certain value threshold or qualify for special treatment, as in the case of health insurance for dependents. Here are some examples:
- Health insurance for dependents
- Health savings accounts
- Dependent care assistance under $5,000
- Group term life insurance under $50,000
- Education assistance under $5,250
- Adoption assistance below the annually adjusted amount
- Small or occasional employer gifts, like movie tickets, birthday cake, or a company t-shirt