Taxes on your pay
What is imputed income?
A line on your stub that adds to your income, subtracts itself again, and leaves you with a tax bill. It is not an error.
The short answer
Imputed income is the taxable value of a benefit you receive in something other than cash. Payroll adds it to your taxable wages so tax can be collected on it, then backs the same amount out again - which is why you see it twice on the stub and why your net pay only falls by the tax, not by the full value. Employer life cover above $50,000, a domestic partner on your health plan, and personal use of a company car are the three that turn up most often.
What gets imputed
| Benefit | What is taxable | Typical stub code |
|---|---|---|
| Group term life insurance | The IRS table value of cover above $50,000, less anything you pay toward it | GTL, IMP LIFE |
| A domestic partner or non-dependent on your health plan | The employer's cost of covering that person | IMP DP, DP IMP |
| Personal use of a company car | The value of personal miles, by one of several IRS valuation methods | PUCC, AUTO |
| Gym memberships and club dues | The full value in most cases | IMP, FRINGE |
| Gift cards and cash-equivalent awards | The full face value, whatever the amount | AWD, IMP |
| Educational assistance above the annual exclusion | The excess only | EDU IMP |
| Employer-provided housing that fails the convenience test | The fair rental value | HSG |
| Below-market or forgiven employer loans | The foregone interest | IMP INT |
Genuinely small and infrequent items - a holiday turkey, occasional coffee, a modest retirement gift - fall under the de minimis rule and are not imputed. Cash and gift cards never qualify as de minimis, regardless of size.
How it moves through a paycheck
Take an employee whose employer provides $150,000 of life cover. The first $50,000 is tax-free, leaving $100,000 of excess cover, which the IRS table values at some monthly amount depending on age. Say that comes to $18.00 for the month:
| Line | Effect | Why |
|---|---|---|
| Regular earnings | $3,000.00 | Normal pay for the period |
| Imputed income - GTL | + $18.00 | Added so tax can be charged on the benefit |
| Taxable wages | $3,018.00 | The figure every tax is calculated from |
| GTL offset | − $18.00 | Removed again - you were never paid it in cash |
| Extra tax paid | about $5.34 | 22% federal plus 7.65% FICA on the $18.00 |
Net pay falls by the tax on the benefit, not by its value. If you can see the addition but no offset, that is worth querying with payroll.
Life insurance: the $50,000 line
Employer-paid group term life is tax-free up to $50,000 of cover. Above that, the excess is valued using an IRS table of monthly rates per $1,000, which is banded by age and rises sharply with it - the same $100,000 of excess cover costs a 30-year-old very little and a 60-year-old several times more. Cover you pay for yourself with after-tax money reduces the imputed figure dollar for dollar. If the tax annoys you more than the benefit helps, most employers let you cap the cover at $50,000 at open enrollment.
Health plans and who counts as a dependent
Coverage for a spouse or tax dependent is tax-free. Coverage for anyone who is not a tax dependent - most commonly a domestic partner, and sometimes an adult child in specific circumstances - is not, so the employer's cost of covering that person becomes imputed income to you. The amounts here are much larger than life insurance imputation, often several thousand dollars a year, and they are one of the more common reasons someone's take-home pay drops without an obvious cause after a benefits change.
Where it shows up at year end
Imputed income is folded into boxes 1, 3 and 5 of your W-2 rather than reported separately, so the totals will not obviously tie back to your salary. Group term life above $50,000 is also itemized in box 12 with code C. If you are checking your final stub against your W-2 - worth doing, as the year-to-date guide explains - imputed income is a common reason the figures differ from what you expected.
Because imputed income raises taxable wages without raising cash pay, a large amount can leave you under-withheld for the year. The W-4 calculator shows what to put on line 4(c) to cover it over the checks you have left.
FAQ
Frequently asked questions
What is imputed income?+
The taxable value of a non-cash benefit your employer gives you. Because it is income in the eyes of the IRS but never arrives as money, payroll adds it to your taxable wages, calculates tax on the larger figure, then subtracts the same amount again so your net pay is unaffected except by the extra tax.
Why is imputed income on my pay stub if I did not get paid it?+
It has to appear in taxable wages for the tax to be collected. Look for an offsetting line - often labeled GTL offset, imputed income offset or non-cash earnings - immediately after it. If both lines are present the benefit was correctly handled and the only real cost to you is the tax on it.
Is imputed income taxed differently?+
No. It is ordinary wages: federal income tax, Social Security and Medicare at 7.65%, and state income tax where applicable. It also appears in the wage boxes of your W-2 like any other pay.
How is group term life insurance imputed income calculated?+
Only cover above $50,000 counts. The taxable value is set by an IRS table of monthly rates per $1,000 of excess cover, banded by age - a few cents per $1,000 for younger employees, rising steeply after 50. Any amount you pay towards the premium yourself reduces the figure.
Can I avoid imputed income?+
Sometimes, by declining the benefit. You can usually cap employer life cover at $50,000, and removing a non-dependent from your health plan removes that imputed value. Whether it is worth it is a straight comparison: the tax on the imputed value against the cost of buying the same cover yourself, which is usually higher.
Does imputed income increase my Social Security benefit?+
Marginally, yes. Because it is subject to Social Security tax, it counts towards the earnings record your future benefit is calculated from - unlike a benefit that is genuinely tax-free.
Sources
- IRS Publication 15-B, employer's tax guide to fringe benefits
- IRS Publication 15 (Circular E), employer's tax guide
- IRS, topic no. 751, Social Security and Medicare withholding rates
- IRS Publication 15-T, Federal Income Tax Withholding Methods
General information for planning, not tax or legal advice. Federal figures are checked against the cited IRS, SSA and Department of Labor documents.
Read next
Related guides and tools
- How to read a pay stub
Every section of a pay stub explained, plus a decoder for the abbreviations payroll systems use.
- Pre-tax vs. post-tax deductions
Which benefits come out before tax, which come out after, and why a 401(k) still pays Social Security.
- What is FICA tax?
The 7.65% pair on every US paycheck: what Social Security and Medicare take, and where each one stops.
- Why is my paycheck less than usual?
Ten reasons a check shrinks between one payday and the next, and how to tell which one hit you.