Imputed Wages

Today TaxMama hears from Vicki in Washington State, with this quick question. “Does imputed income affect Social Security and Medicare taxes as well as federal taxes?
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Dear Vicki,

Well, first you need to understand what imputed income is.

It’s income that you don’t necessarily receive, kind of like ghost income.
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But it’s income that someone is supposed to record by law.

For instance, when you have below-market interest rates on loans between family or friends. IRS sets an interest rate (monthly, in fact) for the minimum you are allowed to charge on a loan. So, when your dad gives you a 0% loan, there is an imputed rate of interest – even though you are not paying. For instance, Dad has to report interest income at 3.81% for a long-term loan issued in May of 2009 – even though he doesn’t receive a dime.

In that instance, Social Security and Medicare are not affected.

However, when you are an employee, and your company pays for health insurance coverage for non-dependents, that is imputed income to you.

IRS has ruled that this imputed income is treated as supplemental wages – and all the regular payroll taxes are to be assessed – income tax withholding, Social Security and Medicare.

And remember, you can find answers to all kinds of questions about imputed income and other tax issues, free. Where? Where else? At

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