What You Should Know about Imputed Income and Fringe Benefits
What You Should Know about Imputed Income and Fringe Benefits

What You Should Know about Imputed Income and Fringe Benefits

Compensation and benefits come in different varieties, but the IRS cares about it all (or most of it, at least). Do you drive a company car? Did you receive a gift card from your employer for stellar performance? Guess what—taxes need to be paid on the value of those items.

It’s easy to overlook fringe benefits as taxable income and most employees will have no idea what “imputed income” even means. If you’re filing tax returns, though, you need to make sure you know exactly what counts and what to do about it.

What is Imputed Income?

When an employee receives non-cash compensation that’s considered taxable, the value of that benefit becomes imputed income for the employee. Unless specifically exempt, imputed income is added to the employee’s gross (taxable) income. It isn’t included in the net pay because the employee has already received the benefit in some other form. But it is treated as income so employers need to include it in the employee’s form W-2 for tax purposes. Imputed income is subject to Social Security and Medicare tax but typically not federal income tax. An employee can elect to withhold federal income tax from the imputed pay, or they can simply pay the amount due when filing their return. Some examples of imputed income include:

  • Adding a domestic partner or non-dependent to your health insurance policy
  • Adoption assistance surpassing the non-taxable amount
  • Educational assistance surpassing the non-taxable amount
  • Group term life insurance in excess of $50,000

Imputed income may also be used to determine an amount for child support payments. Depending on the state, imputed income consideration is meant to give the judge a more precise view of a noncustodial parent’s total income, helping to determine a more accurate child support amount.

What is a Fringe Benefit?

A fringe benefit is services, goods or experiences given to employees in addition to their regular wages, and they are taxable. For example, an employee who wins a $100 gift card for completing a fitness challenge at work has to report it as income.

Some examples of fringe benefits include:

  • Using a company car for personal activities
  • Wellness program incentives, including country club or gym membership fees
  • Gift cards, regardless of dollar amount
  • Prizes and awards (Did you win an iPad?)

What are Nontaxable Fringe Benefits?

Employers can indulge in a few fringe benefits that won’t raise any red flags with the IRS. Called “de minimis (minimal) benefits,” these benefits are something worth so little that the IRS considers it administratively impractical to record or keep an account.

While there’s no official dollar amount defining what makes a benefit de minimis, it’s best to keep it less than $75 because the IRS says anything $100 or more is not considered a de minimis benefit.

Some de minimis benefits include:

  • Company picnics
  • Flowers or fruit for a special occasion
  • Holiday or birthday gifts with a low fair-market value
  • Logo-branded t-shirts and trinkets (stress balls, water bottles, keychains, etc.)
  • Occasional tickets for theater or sporting events
  • Occasional personal use of a company copy machine

It can be confusing to keep track of what’s taxable income and what’s not. You can always review the IRS’ Fringe Benefit Guide for the latest information on imputed income. And remember, Paycor is here to help your organization with any payroll processing needs you may require.


Paycor product demo

More to Discover

Employee Safety During COVID-19: Compliance Toolkit

Employee Safety During COVID-19: Compliance Toolkit

Vaccines are coming to the rescue, but we’re not out of the woods yet. HR leaders can’t afford to take their eye off the ball when it comes to employee safety and compliance. Now’s the time to think about creating a vaccine policy that works for your organization, and it’s not too late to implement workplace testing. If an employee does test positive for COVID-19, you’ll want to make sure you’re ready to offer the right information and support to your whole team. Paycor is offering this free compliance toolkit, including customizable letter templates to use when you: Create a mandatory vaccine policy Implement workplace testing Inform your team that an employee has tested positive for COVID-19

Demotion Letter Template

Demotion Letter Template

There’s nothing better than seeing employees thrive, but setbacks and slips in performance do happen. One way to address performance problems is a demotion. Sometimes, it’s necessary to take a step back before you can take two steps forward. Download Demotion Letter Template When is a Demotion Necessary? In an ideal world, there wouldn’t be demotions. They are a sign something’s wrong: it could be that an employee has failed to respond to a performance improvement plan or they could just be disengaged. A demotion is the last stop before termination. If you believe the person has potential and is worth investing in, then a demotion might be the best way forward. Demotions are risky, though. You could end up with an employee who is even...

Maximum PTO Accrual Letter

Maximum PTO Accrual Letter

Encouraging employees to use their vacation days can feel strange. After all, nobody wants to leave themselves under-staffed and the rest of their team over-worked. On the other hand, what if employees rarely ever, or even never, take time off? That’s been a question facing business owners this year, as vacation plans were delayed, then cancelled, and PTO built up like never before.One problem is, PTO payout laws can turn unused PTO into an unwanted financial liability. There’s also a risk of schedule chaos down the line as everyone tries to use their days up at once. Most worrying of all is that employees who go too long without a break, even by choice, risk ending up disengaged and burned out. Download Sample Maximum PTO Accrual Letter...

How Long to Keep Payroll Records

How Long to Keep Payroll Records

Running a business, you know that compliance isn’t just about being compliant—you also need to prove it. You never know when the IRS, the DOL or the EEOC will demand to see your paperwork, which is why it’s so important to retain payroll records. To make things more complicated, each agency has its own rules for which documents you have to keep and for how long. The good news is, you don’t have to buy more filing cabinets. HR software can automatically store everything you need, with the added benefit of simplifying the whole payroll process. Why You Need to Retain Payroll Records At a federal level, you’re keeping payroll records primarily for three agencies: The IRS The Department of Labor (Wage and Hour Division) The EEOC These...