Benefit plans requiring imputed income

The cost of some benefits, such as life insurance, must be imputed as income to the employee if it exceeds a pre-determined amount. For example, in the US, organizations can provide $50,000 in coverage for a life insurance plan. Coverage above that amount must have income imputed to the employee for taxation purposes.

For example, employees are given 1 times their salary in basic life coverage. An employee’s salary is $80,000 and they are 40 years old. The IRS (Internal Revenue Service) provides the table of cost and examples for determining the price of the coverage in the IRS publication 15b – Employer’s Tax Guide to Fringe Benefits. For a 40 year old, the cost of coverage is $.10 per $1,000 in coverage. In this example, the employee has an annual imputed income of $36.00.

 ((coverage – government-determined amount) / 1000) x rate x months); (80,000 – 50,000) / 1,000) x .10 x 12).

Enabling imputed income for benefit plans