**Imputed income definition**: **Additional taxable income added to your W-2 for the fair market value of non-cash benefits** provided by your employer. **Not cash you receive**, but IRS treats it as taxable compensation.

Most common on paychecks when: Employer pays health insurance for **domestic partner** (not spouse).

Group term life insurance **over $50,000** coverage.

Personal use of **company car**.

Gym memberships, parking, transit benefits exceeding IRS limits. **How imputed income works (2025 tax treatment)**: **Example 1: Domestic partner health coverage (most common)**: **Scenario**: You add domestic partner to employer health plan.

Employer premium: $800/month for partner's coverage ($9,600/year). **Tax treatment**: $9,600 added to your W-2 Box 1 (wages) as **imputed income**.

You pay income tax + FICA (7.65%) on this $9,600. **Your paycheck impact**: Additional taxes withheld: Federal income tax (22% bracket): $9,600 × 0.22 = **$2,112/year** ($176/month).

FICA tax: $9,600 × 0.0765 = **$734/year** ($61/month).

State income tax (5%): $9,600 × 0.05 = **$480/year** ($40/month). **Total annual tax**: $2,112 + $734 + $480 = **$3,326** ($277/month). **Net cost**: Your employer pays $800/month premium, but you pay $277/month in extra taxes = **effective cost to you is $277/month** (vs $800 if you bought insurance yourself). **Still a good deal** if your employer covers partner's premium. **Example 2: Group term life insurance over $50,000**: **Scenario**: Employer provides $200,000 group term life insurance.

IRS allows **first $50,000 tax-free**.

Remaining $150,000 = imputed income. **IRS Table I cost** (monthly cost per $1,000 coverage, by age): Age 25-29: $0.06 per $1,000.

Age 30-34: $0.08.

Age 35-39: $0.10.

Age 40-44: $0.15.

Age 45-49: $0.23.

Age 50-54: $0.43.

Age 55-59: $0.66.

Age 60-64: $1.17. **Calculation (age 40)**: Coverage subject to imputed income: $200,000 - $50,000 = **$150,000**.

Monthly cost: $150 (thousands) × $0.15 = **$22.50**. **Annual imputed income**: $22.50 × 12 = **$270**. **Tax on imputed income**: $270 × (22% federal + 7.65% FICA + 5% state) = **$93/year** ($7.75/month). **Much cheaper** than buying $150k individual life policy ($50-$100/month). **Example 3: Personal use of company car**: **Scenario**: Employer provides company car (2025 Toyota Camry, $30,000 value).

You drive 15,000 miles/year, **60% business, 40% personal** (6,000 personal miles). **IRS valuation methods**: **Annual lease value** (ALV) based on FMV: $30,000 car → ALV = $8,250/year (IRS table). **Personal use %**: 40% → $8,250 × 0.40 = **$3,300 imputed income**.

OR **Cents-per-mile rule** (if <50% business): 6,000 personal miles × $0.67/mile (2025 rate) = **$4,020 imputed income**. **Employer chooses lower method** → $3,300 imputed income. **Tax**: $3,300 × 34.65% (22% + 7.65% + 5%) = **$1,143/year** in extra taxes. **What benefits are NOT imputed income (tax-free)**: **Health insurance for spouse/dependents** (tax-free under IRS rules). **Retirement contributions** (401k employer match = tax-deferred, not imputed). **First $50,000 group term life insurance**. **De minimis fringe benefits** (<$100/year value): occasional meals, coffee, holiday gifts. **Qualified employee discounts** (up to 20% discount on services, wholesale cost on goods). **HSA contributions** (up to $4,300 individual, $8,550 family for 2025). **Commuter benefits** (up to $315/month for parking + $315/month for transit in 2025). **Educational assistance** (up to $5,250/year). **Why imputed income shows on paystub**: **Informational** - shows value of benefits you're receiving. **Tax withholding** - employer withholds federal/state income tax + FICA on imputed amount. **W-2 reporting** - appears in Box 1 (wages), Box 3 (Social Security wages), Box 5 (Medicare wages). **Common situations creating imputed income**: **Domestic partner** on health/dental/vision plan (biggest impact: $5k-$15k/year imputed). **Group term life >$50k** (small impact: $100-$1,000/year). **Company car** personal use (medium: $2k-$8k/year). **Relocation assistance** over $5,000 (lump-sum gross-up). **Adoption assistance** over $16,810 (2025 limit). **Moving expense reimbursement** (no longer tax-free after TCJA 2017). **How to minimize imputed income tax**: **Domestic partner**: If eligible, get legally married (health coverage becomes tax-free).

OR compare cost: Pay $277/month tax on imputed income vs buying partner individual insurance ($400-$600/month) = imputed income still cheaper. **Group term life**: Opt out of excess coverage if you have cheaper term life elsewhere.

But often worth paying tax (cheaper than buying own policy). **Company car**: Keep detailed mileage log showing >50% business use → can use actual expense method.

OR request employer use **cents-per-mile below ALV** if you drive low miles.

**Domestic partner imputed income calculation (step-by-step for 2025)**: **Step 1: Determine monthly premium for partner's coverage**: Your employer provides this on **pay stub** or HR benefits statement.

Look for: "Imputed Income - Domestic Partner" line item. **Amount per pay period** (biweekly or monthly). **Example**: Your employer charges $650/month for domestic partner health + dental coverage. **Step 2: Calculate annual imputed income**: **Monthly premium** × 12 months = **Annual imputed income**.

Example: $650/month × 12 = **$7,800/year** added to your W-2 wages. **Step 3: Calculate additional income taxes**: **Federal income tax**: Imputed income × Your marginal tax rate. **2025 federal brackets** (single): 10%: $0-$11,925. 12%: $11,926-$48,475. 22%: $48,476-$103,350. 24%: $103,351-$197,300. 32%: $197,301-$250,525.

Example: You earn $75k/year → 22% bracket.

Federal tax on imputed income: $7,800 × 0.22 = **$1,716/year**. **FICA taxes** (Social Security + Medicare): **7.65%** on imputed income (up to Social Security wage base $176,100 for 2025). $7,800 × 0.0765 = **$597/year**.

Breakdown: Social Security 6.2%: $484.

Medicare 1.45%: $113. **State income tax** (varies by state): California: 9.3% → $7,800 × 0.093 = **$725**.

New York: 6.5% → $7,800 × 0.065 = **$507**.

Texas/Florida: 0% → **$0**. **Step 4: Total additional taxes per paycheck**: **Annual total**: Federal $1,716 + FICA $597 + State $507 (NY example) = **$2,820/year**. **Monthly**: $2,820 ÷ 12 = **$235/month** withheld. **Biweekly**: $2,820 ÷ 26 = **$108/paycheck** withheld. **Detailed example with paystub breakdown**: **Your situation**: Gross salary: $80,000/year ($3,077/biweekly).

Domestic partner health insurance: $650/month employer premium.

Tax filing status: Single.

State: California (9.3% income tax). **WITHOUT domestic partner on insurance (baseline paycheck)**: Gross pay: **$3,077**.

Federal income tax: -$462 (15% effective).

FICA: -$235 (7.65%).

State tax: -$277 (9%). **Net pay**: $3,077 - $462 - $235 - $277 = **$2,103**. **WITH domestic partner on insurance (paycheck with imputed income)**: Gross pay: **$3,077**. **Imputed income added**: +$300 ($650/month ÷ 2 paychecks). **Adjusted gross for tax withholding**: $3,077 + $300 = **$3,377**.

Federal income tax: -$507 ($3,377 × 15%).

FICA: -$258 ($3,377 × 7.65%).

State tax: -$304 ($3,377 × 9%). **Net pay**: $3,077 - $507 - $258 - $304 = **$2,008**. **Difference**: $2,103 - $2,008 = **$95 less per paycheck** (you pay $95/paycheck for partner's $650/month insurance = **effective cost $95 × 2 = $190/month** vs $650 employer pays). **Still saves $460/month** vs buying partner individual insurance ($650 marketplace plan). **W-2 impact at year-end**: Box 1 (Wages): $80,000 salary + $7,800 imputed = **$87,800**.

Box 2 (Federal withholding): Higher due to $7,800 extra income.

Box 3 (Social Security wages): **$87,800** (imputed income subject to FICA).

Box 5 (Medicare wages): **$87,800**.

Box 12 Code DD (total health coverage): Shows **employer + employee + imputed** (informational only, not taxable except imputed portion). **Key points**: You file taxes on **$87,800**, not $80,000.

Your Social Security benefits calculated on higher earnings (small future benefit). **Common mistakes to avoid**: **Thinking imputed income reduces your net pay by full premium amount** - No, you only pay **taxes on premium**, not the premium itself (employer still pays $650).

Actual cost to you = taxes on $650 = ~$190/month. **Not adjusting W-4 withholding** - If you add partner mid-year, extra imputed income may mean you **owe taxes** in April.

Use IRS Withholding Estimator to increase withholding. **Assuming it's not worth it** - Even paying $190/month in taxes on $650 premium = **71% discount** (employer covers $460). vs buying partner individual plan ($400-$800/month full price). **Imputed income for same-sex married couples**: **No longer imputed** - Since 2013 Supreme Court ruling + 2015 Obergefell, **legally married same-sex spouses = same tax treatment as opposite-sex**.

Health coverage for spouse = **tax-free** (no imputed income). **Only domestic partners** (unmarried) have imputed income. **State variations**: **Some states** (CA, NJ, NY) allow **state tax exemption** for domestic partner health benefits if: Registered domestic partnership.

Partner meets IRS dependent definition (supported by employee, lives in home).

Check your **state return** - may get state refund even though federal taxes apply. **Special case: Dependent domestic partner**: If your domestic partner qualifies as **IRS tax dependent** (rare): Lives with you all year.

You provide >50% financial support.

Gross income <$5,050 (2025). **Then health coverage = tax-free** (no imputed income).

Extremely rare (usually partner has own income >$5k). **How employer calculates imputed income per paycheck**: **Monthly premium** (what employer pays for partner). **Divide by pay periods**: Biweekly (26/year): Monthly premium ÷ 2.167 = biweekly imputed.

Example: $650/month ÷ 2.167 = **$300/paycheck**.

Semi-monthly (24/year): Monthly premium ÷ 2 = semi-monthly imputed.

Example: $650/month ÷ 2 = **$325/paycheck**. **Added to gross wages** for tax withholding calculation. **Not included in net pay** (it's a phantom addition for tax purposes). **Verification**: Check pay stub "Imputed Income" line.

Multiply by # paychecks per year = should equal annual premium for partner.

Example: $300/paycheck × 26 = $7,800/year. **When imputed income ends**: Partner gets job with own health insurance (drop from your plan).

You legally marry partner (coverage becomes tax-free spousal).

You leave employer. **Pro tip for financial planning**: Calculate **effective monthly cost** = (Annual imputed tax ÷ 12).

Example: $2,820 tax ÷ 12 = **$235/month effective cost**.

Compare to: **Individual health insurance** for partner: $400-$800/month (Healthcare.gov marketplace). **Employer plan with imputed tax**: $235/month effective cost. **Savings**: $165-$565/month by staying on employer plan despite imputed income tax.