Imputed Income
The fair market value of non-cash employer benefits that the IRS treats as taxable compensation.
What is Imputed Income?
Imputed income is the fair market value of non-cash fringe benefits an employer provides to employees that the IRS considers taxable compensation. Common examples include employer-paid life insurance coverage exceeding $50,000, personal use of a company car, gym membership subsidies, and domestic partner health benefits when the partner is not a tax dependent. Unlike cash wages, imputed income is included in the employee's W-2 but not paid out in cash, meaning the employee owes income and FICA taxes on value they never received as money.
Example
An employer provides a company car with $8,000 per year in personal-use value and pays for $100,000 in group-term life insurance. The personal car use ($8,000) and the insurance cost above the $50,000 IRS exclusion are both reported as imputed income on the employee's W-2, increasing their taxable wages and the taxes withheld from their paycheck.
Source: IRS Publication 15-B — Employer's Tax Guide to Fringe Benefits