FAQ

How to calculate imputed income for life insurance

When your employer offers you group term life insurance, it is considered a tax-free benefit as long as the death payout remains $50,000 or less. However, when the value of the term life insurance payment exceeds $50,000, the IRS requires the employee to report it as income. once the payment is considered income, it has tax implications for the employee. Although imputed earnings include benefits that are not part of an employee’s direct monetary compensation, there are ways you can calculate the amount yourself.

what is imputed income?

Generally speaking, imputed income includes benefits received by an employee that are not part of their salary and wages. but these benefits are still taxed as part of an employee’s income. while the employee may not have to pay for these benefits and services, he or she may have to pay taxes on them, regardless of the dollar value of the benefits. you may hear these referred to as fringe benefits with some companies.

Reading: How to calculate imputed income for life insurance

It is important to understand the impact imputed income has on employee taxes. This amount must be included on an employee’s W-2. Without this information, the employee may end up paying less tax if imputed income was not included.

The following table shows how the IRS breaks down the monthly cost of taxable income per $1,000 of excess coverage. this is for coverage above and beyond the $50,000 death payout of term life insurance.

types of imputed income

There are several examples of imputed income that an employer may offer. examples may include:

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