Imputed Income | Meaning and Definition

Compensation and income to an employee come in different terms. But the government taxation department cares about everything. It is easy to have a view on the fringe benefits offered by an employer to an employee, but the fact is that most employees don’t know the term imputed income.

What is income?

The amount paid to the employees in exchange for the service they provided for the organization.

What is the imputed cost?

Imputed income is the benefits earned by employees who are taxed, and these benefits will not be included in the salary or gross wages of employees. In other words, income will be classified as direct taxable income and benefits (which may be taxable or non-taxable). When the benefits (which are not a part of the salary) they receive are taxable, it is termed imputable income.

The employees in the organization hold the responsibility for paying the tax amount which comes with the benefits they earn.

Some examples of imputed income are the usage of the company car, free gym membership, group insurance benefits (exceeding a certain amount as mandated), educational assistance (exceeding a certain amount as mandated), cash cards, gift vouchers, etc.

It is necessary for an employee to calculate and record the imputed income of every employee over a financial year (just like a regular salary). It is because there is a mandate to report to the government taxation team in certain cases. An employee, they can choose to withhold income tax from imputed income, or they can pay the taxation for the imputed income when they file a return. It is a duty of an employer to inform an employee of the penalties if their withholding is insufficient.  

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