I am facing a layoff with the option to take advantage of company-paid benefits up to one month after layoff. However, I am responsible for taxes. It has been explained that I am responsible for taxes on my share of the premiums which may be calculated as “imputed income”. As I understand it, “imputed income” is not money received, but POTENTIAL money, such as the full value of my life insurance? So, they tax you on what you MAY receive, if ever? I am hoping my understanding is in error. Can the SD help me decipher the meaning of this? Maybe others have been in a similar boat and can explain how this worked for them? Naturally, the answer may vary based on local tax laws, etc., but I’d like to hear what the SD has to say on this matter. 
You’ve got it all wrong. “Imputed income” is the difference between what you pay for something you got from your employer and what it’s really worth.
Imagine your employer has a cafeteria where you can choose to buy lunch any day for $2/day. Comparable lunches at comparable facilities in town would cost $8.
What’s *supposed *to happen is your W-2 at the end of the year will show in one of those special boxes an amount of $6 times however many lunches you bought that year.
And that value goes into your tax return as income. Upon which you’ll pay taxes. The theory being that the overall outcome for both you and for the IRS should be the same as if your employer had paid you $6 more but you’d bought lunch in town each of those days.
As it relates to your specific situation, your employer has been paying some part of insurance premiums for your benefit. Whether that’s life insurance, medical insurance, whatever. As long as you’re an employee (and subject to certain limitations) that’s all fine. Most bennies for ordinary employees don’t rise above the threshold to need imputed income treatment.
But the issue comes up if they paid for something which is effective during the time you’re not an employee.
E.g. if they paid 2017’s entire life insurance premium for you already and you’re being laid off in Feb, well the premiums they pre-paid on your behalf covering those next 11 months while you’re not an employee any more are “imputed income.”
Which premiums will appear on your W2 and on which you’ll owe income tax. You’re *not *paying tax on some insurance payout you may never receive. You’re paying tax on the “free” insurance they paid for.
nm
Thanks, LSL Guy! Your example puts the matter into common, everyday terms. Now, maybe someone can help me interpret this reply when asking how to estimate how much in taxes we’re talking: “If an EE terms, benefit deductions not taken from employee paychecks during LWOP are imputed to current year income. Gross up for FICA is included to cover Social Security tax, Medicare tax and Medicare Surtax (if applicable) and included in the imputed income.”
It took me awhile to translate the opening where “EE” = exempt employee and “terms” = terminates. And, I think I get what they are saying about benefit deductions not taken from a paycheck (becuase there is no paycheck form which benefits would normally be taken…but they will pay for me). However, what does the rest mean if one is not drawing a paycheck? To me, “gross up for FICA…” reads as if one is drawing a paycheck! At best, I may have 8 hrs vacation they will have to cash out. And, there is the possibility a paycheck lagging by two weeks. (I really haven’t paid attention.) Your thoughts?
AH! It just hit me. I believe the latter part of that statement “Gross up for FICA…” refers to contributions made by my employer into Social Security, etc. I forget about such things because it is transparent to me. However, if I am correct, then I am being told all those contributions an employer makes are deemed “imputed income”, as well. …but, does an employer keep paying into this when one is placed on LWOP and not collecting a paycheck?
Whew! Sorry boss, but I can’t afford to be laid off! 