Imputed Income & Realization: Definition & Examples

Instructor: Maneesh Mehra
In this lesson, learn about imputed income, their types, associated laws, and taxation requirements. Examples will be included to see how this income can apply to the average employee.

What is Imputed Income?

Charles has recently started working in a production company. Apart from salary, he is entitled to receive several other perks called fringe benefits. His fringe benefits include company-provided accommodation, a vehicle, and medical care.

One day Charles visits his accountant, Julie, and tells her how nice it is to get these perks from his new job. She agrees, but reminds him that all of these services are part of his imputed income and are included in his gross wages before taxes. In other words, they're taxable.

Imputed income is the value of compensation an employee receives that is not part of their regular earnings. Employers are required to include any benefits provided as imputed income in employee's gross wages to accurately withhold employment taxes. The Social Security Administration and the Federal government want their share related to the value of these extras.

Types of Imputed Income

Imputed income is any benefit provided other than regular earnings, such as:

  1. Company-provided accommodation
  2. Medical care
  3. Free use of employer's vehicle for a personal purpose
  4. Gym or golf club membership
  5. Care assistance for dependents of employee
  6. Education assistance

Example of Imputed Income

Say Minny is with a food delivery business, a small company that can't afford to increase pay. They are very happy with her performance though. Joe, the owner, says to Minny,''How about this, in lieu of an hourly increase in pay, I'll let you take the company vehicle home on the weekends and you are free to use it. I'll make sure it always has a full tank of gas.''

The IRS says that this is imputed income. As per the IRS 2019 guidelines, the cost of using a vehicle is $0.58 per mile - this includes the gas plus the wear and tear on the vehicle. Instead of driving her own vehicle at the estimated cost of $0.58 per mile, she is driving the employer's vehicle and using his gas.

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