Imputed Income
Imputed income is the term the I.R.S. applies to the value of any benefit or service that should be considered income for the purposes of calculating your federal taxes. Some of the benefits that are considered Imputed Income include:
- Value of employer provided life insurance coverage greater than $50,000.
- Employer-provided, tax-free child care benefits in excess of $5,000
(such as the Dependent Care Reimbursement Account or Cyert Center Sliding Scale benefits) - Health, medical and dental insurance coverage for an unmarried domestic partner.
The value of life insurance coverage over $50,000 is not the same as the policy's coverage level. The value of the coverage is the amount the IRS assumes you would have to pay to purchase a policy in that amount in the private market. This value is based on your age and the amount of coverage you have. The Imputed Income will be added to your pay for tax purposes, and the additional taxes that you owe will be withheld from your paycheck each month.
- To Calculate Your Imputed Income yourself (go to page 2 of the document).
To avoid paying taxes on Imputed Income, you can limit your life insurance to $50,000, the amount not taxed by the I.R.S.