Every pay period your business issues income to its employees, in the form of money. In addition, it provides imputed income through mandatory and voluntary benefits.
Understanding imputed income helps you provide the ideal benefits program to your team, saving them money together with you, all year long. Effective management of imputed income helps them enjoy savings during open enrollment, on payday, and at tax time. Your team members and their families will agree.
What is Imputed Income?
The word, impute, means to attribute. As a business and finance term, it refers to calculating as a value or cost.
Your business imputes, or attributes, income to its employees when it provides them with insurance benefits, with a specific value, or cost, that you can clearly calculate. To them, it refers to payment received in some form other than cash or money … as in the form of an insurance policy and benefits.
Imputed income can come to a person or business in many forms. Insurance coverage, club memberships, and use of business vehicles for non-business activities all fall under the concept of imputed income. Benefactors never see this value in their bank accounts.
Even so, the Internal Revenue Service (IRS) regards it as income because the employee receives a calculable value from their benefits. The government sees this value as income “imputed,” or attributed, to the employee. Benefactors have rights to the potential benefits, making them taxable. If their benefits exceed $50,000 in one tax year, they have to pay income tax on the overage.
Your Business Pays Imputed Income through Basic Benefits
Your business pays its employees a number of federally-mandated basic benefits:
Federal Insurance Contributions Act (FICA)
workers’ compensation insurance
family and medical leave
In addition to federally mandated basic benefits, states also require businesses to pay additional benefits. For example, the state of New York includes home health care, education assistance, and wellness programs as mandatory components of certain insurance plans.
How Can Your Business Best Utilize Imputed Income?
Obtaining life insurance, workers’ compensation, insurance, and other benefits can be very complicated and expensive for an individual or family. Here’s how allocation of imputed income through life and health insurance plans saves money for you and your team:
- Cheaper by the Dozen. First, by packaging and simplifying enrollment and administration of these benefits as a group, your insurance brokerage can help provide a discount over individual insurance plans.
- No Taxation Below $50,000. Secondly, by issuing imputed income, through insurance, you save them from paying taxes on up to $50,000 of benefits.
- Administrative Savings. By managing imputed income through an insurance brokerage, you business provides additional benefits without requiring additional HR staff for administration. Regular payroll deductions and brokerage-managed modifications during each payroll cycle simplify the process.
Your business saves money when it allocates funds to these employee benefits. Your employees, likewise, save money. This imputed income incentivizes their loyalty to your business and makes them feel more secure about their family’s protection.
What Type of Agency Helps with Imputed Income?
Because one of the largest components of imputed income comes from insurance benefits, carefully planning your company’s group benefit plans can provide one of the greatest benefits to your business and employees.
An experienced insurance agent can help your HR personnel set up appropriate payroll deductions and provide the end-of-year numbers to roll smoothly through federal and state reporting at tax time. Zupnick Associates, for example, ensures correct changes per payroll cycle and provides pre- and post-tax data for accurate bookkeeping from start to finish.