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Question: How do we explain imputed income to a client who manually does its own payroll?

Answer: Imputed income is a monetary value added to the gross income for the purpose of calculating taxes.

Imputed income may not be seen on the paycheck as cash but comes in the form of a benefit, such as the value of a company car provided to an employee that can be used for personal use or the value of employer-provided life insurance or other benefits that may be provided by the employer.

Imputed income is taxable to the employee, unless specifically exempt, and because it is delivered to the employee for  services performed for the employer, it must be included in the employee’s Form W-2 to accurately reflect the employee’s taxable wage-related income.

Employees may choose to have federal income tax withheld on the imputed income or pay what may be due when filing their annual tax returns.