Imputed income refers to the income that a taxpayer obtains from consuming his own services.
For example, when a homeowner constructs his own custom-built cabinet for the kitchen instead of spending $10,000 on a contractor to do it for him.
In this instance, he would theoretically be paying himself $10,000 to construct and install the cabinet himself. This in imputed income and non-taxable.
As another example, a homeowner might be servicing a mortgage for a property he has purchased. This enables him save the money required for rental expense should he not own the house. This economic benefit can also be classified as imputed income.
In companies, imputed income for employees can come in the form of fringe benefits.
In essence, every service or benefit provided by an employer to an employee can be categorized as imputed income. There can be taxable and has to be declared to the tax authorities when reporting for income tax.
Some of benefits that could be considered imputed income include:
- Insurance for family member of employees
- Personal use of company car
- Phone bill incentives
To determine whether company benefits are taxable, it is best to check with the company’s human resource department or speak to a qualified accountant for advice.