|Benefits and Imputed Income Tax: What You Should Know
December 11, 2007, Volume 54, No. 15
Exactly what is “imputed income” and why should you care? The answer has to do with money: imputed income can affect your taxes. Now that we have your attention, let’s talk about what imputed income actually means.
Imputed income is a term the Internal Revenue Service (IRS) applies when they feel that the value of a benefit or service should be considered as income for the purposes of calculating your federal taxes. Only a few benefits may count as imputed income:
• Basic life insurance in excess of $50,000 (non-bargaining unit employees only)
• Medical and dental insurance coverage for domestic partners and their dependents
• Use of the Penn Children’s Center
Please read below for more information on these benefits. In the meantime, rest assured that you don’t have to do anything—Penn calculates your imputed income automatically and the amount is reported on your W-2 form. For more information about imputed income and the benefits referenced here, please consult the Health and Welfare Summary Plan Description at www.hr.upenn.edu/benefits/spd.asp or call the Penn Benefits Center at 1-888-PENN-BEN (1-888-736-6236).
Basic Life Insurance
Penn provides basic life insurance worth one times your benefits base salary to all full-time, benefits-eligible faculty and staff. If this amount is less than $50,000, imputed income taxes do not apply. If this amount is greater than $50,000, the IRS will assess imputed income taxes according to a sliding scale based on your age and income. The imputed income tax on basic life insurance is generally not a significant amount, but it does increase with your age and income.
Medical and Dental Insurance for Domestic Partners and Their Dependents
Penn faculty and staff contribute the same amount to provide medical and dental insurance coverage for a same-sex domestic partner and/or the children of that partner as they would for a spouse and/or the spouse’s children. However, the IRS treats spouses and domestic partners differently with respect to health benefits. As a result, the difference between the single and family premium rates for the relevant medical and dental insurance is considered imputed income for faculty and staff covering a domestic partner and/or the children of that partner.
Penn Children’s Center
Penn faculty and staff who utilize the Penn’s Children’s Center receive a subsidy from the University (the exact amount is either the discounted Penn rate or the fee assistance that families receive if they meet certain guidelines). This subsidy can count as imputed income in one of two ways, depending on whether or not you also maintain a dependent care pre-tax expense account:
• If you maintain a dependent care pre-tax expense account and also utilize the Penn Children’s Center, the amount of your Penn Children’s Center subsidy will be added to your pre-tax expense account election. If this combined total is over $5,000, the amount over $5,000 will be assessed as imputed income by the IRS.
• If you utilize the Penn Children’s Center but do not maintain a dependent care pre-tax expense account, the amount of the subsidy you receive from the University will be assessed as imputed income by the IRS.
—Division of Human Resources