What Is Imputed Income on My Paycheck?
Imputed income is the value of something your employer gave you that was not cash, which the IRS still treats as taxable wages. You never see the money. You are taxed on it anyway. That is why it can appear on your stub while your take-home pay goes down rather than up.
Nine times out of ten the line is employer-paid life insurance, and the reason is a single threshold in the tax code.
The $50,000 rule
Only the first $50,000 of employer-provided group-term life insurance is tax-free. IRS Publication 15-B says the employer must include in your wages the cost of coverage beyond $50,000, reduced by anything you pay toward it.
The important subtlety: the taxable amount is not what the policy costs your employer. It is a figure from an IRS table, based on your age. Two colleagues with identical coverage can carry very different imputed income if they are twenty years apart.
IRS Table 2-2 — cost per $1,000 of coverage, per month
| Your age | Monthly cost per $1,000 |
|---|---|
| Under 25 | $0.05 |
| 25–29 | $0.06 |
| 30–34 | $0.08 |
| 35–39 | $0.09 |
| 40–44 | $0.10 |
| 45–49 | $0.15 |
| 50–54 | $0.23 |
| 55–59 | $0.43 |
| 60–64 | $0.66 |
| 65–69 | $1.27 |
| 70 and older | $2.06 |
Use your age on the last day of your tax year. Note the shape of that column: the rate rises about forty-fold from the youngest band to the oldest, so the same policy that is a rounding error at 30 is a real number at 65.
The IRS’s own worked example
Tom has $200,000 of employer-provided coverage, is 45 years old, and pays $100 a year toward it.
- Coverage above the threshold: $200,000 − $50,000 = $150,000
- In thousands: 150 units
- Rate at age 45: $0.15 per $1,000 per month
- Yearly cost: $0.15 × 150 × 12 = $270
- Less Tom’s own $100 contribution
His employer includes $170 in his wages. On $200,000 of life cover, the taxable value is a hundred and seventy dollars — which is worth remembering before anyone panics at the line on their stub.
Where it lands on your W-2
In two places, which routinely reads as an error and is not. The amount is included in boxes 1, 3 and 5 — federal taxable wages, Social Security wages, Medicare wages — and it is itemised separately in box 12 with code C. Box 12 is not an additional charge; it tells you which part of your box 1 total came from this benefit rather than from cash.
The part that causes surprise tax bills
Imputed income is subject to Social Security and Medicare tax in the normal way. Federal income tax withholding is not automatic: Publication 15-B states the employer may, at its option, withhold federal income tax on group-term life insurance.
Many employers do not. The income is on your W-2, nothing was withheld against it, and the tax is settled when you file. For most people that is a few dollars. For someone older with a large policy it can be enough to notice, and it is a common hidden contributor to a paycheck that looks wrong.
Other things that get imputed
- Health coverage for a domestic partner who is not your tax dependent
- Personal use of a company car
- Gym memberships and similar fringe benefits
- Education assistance above the annual exclusion
Sources
- Internal Revenue Service, Publication 15-B, Employer’s Tax Guide to Fringe Benefits — the $50,000 threshold, Table 2-2 rates, the Tom example, W-2 box 12 code C, and the optional federal withholding.
General information, not tax advice. Every figure above was read from the IRS source on 6 August 2026; rates and thresholds change.