How is Imputed Income Calculated?
Imputed income is the addition of the value of cash/non-cash compensation to an employee’s taxable wages in order to properly withhold income and employment taxes from the wages. Imputed income is taxable to the assignee (unless specifically exempt). Because it is delivered for the performance of services (related to employment) it must be included in the assignee’s Form W-2 to accurately reflect the assignee’s taxable wage-related income.
Imputed income is reported on Form W-2. Imputed income is not subject to the federal income tax withholding rules. Employees may choose to have federal income tax withheld on the imputed income or pay what may be due when filing their federal income tax return. Tax penalties may apply if the employee has not withheld enough federal income taxes on the imputed income. Imputed income is subject to withholding for FICA tax purposes. Imputed income is also often relevant to determinations of support payments in divorce.
Examples of imputed income include:
- Group term taxable life insurance coverage over $50,000.
- Dependent care assistance that exceeds the tax- free amount. (Vol. Spouse/Dependent Life)
How is Domestic Partners Imputed Income Calculated on PlanSource?
Imputed income is calculated two ways based on the Tier-Based Benefits. PlanSource calculates this rate by using the Employee Only Amount or the Original Coverage Level Difference. If an employee has a dependent listed as a Domestic Partner in PlanSource and attaches them to a benefit plan the system will compare the new coverage level to the previous coverage level.
For Example: EE Only coverage cost $50.00
EE + Child coverage cost $100.00
EE + Spouse (DP) coverage cost $150.00
EE + Family (DP) coverage cost $175.00
If an employee had EE + Child coverage before and now wants to add the Domestic Partner to the plan the system would calculate the difference between the original coverage of $100.00 from the new cost of $175.00. This amount of $75.00 would be considered Imputed Income and would not be subject to Pre-Tax Exemption under Section 125.
If the employee was a new hire and did not have coverage before and they elected EE + Spouse coverage and attached their Domestic Partner to the plan, the system would calculate the difference from EE Only of $50.00 to the new cost of $150.00. The amount of $100.00 would be considered Imputed Income and would not be subject to Pre-Tax Exemption under Section 125.