Imputed Income

[Spanky]

My employer added $409.39 to my taxable income (reported in Box 1) which represents $268 for guaranteed term life > $50k (which I am OK with) plus $141.39 which equals the tax withheld on that grossed up amount of $409.39  ($90.07 at the 22% bonus rate, $31.32 FICA at 7.65% and $20 state).  I am OK with the $268 being added to my taxable income, but it seems to me that because the $141.39 of taxes was added to the taxable income on my W-2 that I am actually now paying tax on tax.  Am I missing something?  Thank you.

[Mike9241]

gross up for taxes is required but you'll notice part of the gross up was for income taxes which will be included in the withholding amounts on your w-2

409.39*.22=90 which = amount of federal withholding included  

[Spanky]

Why is the gross up required?  I did not receive any additional cash to cover the taxes withheld, so I don't understand why my taxable income includes both the $268 for GTL premiums & $141.39 for taxes on $268+$141.39?  The company started assessing $13.40/pay period in September and decided in December to "catch-up"  the 20 pay periods earlier in the year I as not assessed the $13.40 premium.  For the 6 pay periods it was included on my pay stub, there was no gross-up - only the $13.40 was included in my wages and taxes were withheld and the amount deducted from the net pay I received.  It doesn't make sense to me that these 20 payments are being treated differently and that only the 6 pay periods are being included in Box 12 of my W2 instead of 26 pay periods since they "caught them all up" in December and I was imputed for a full year.  I have searched and searched and all I can find is that a company can gross up income, but everything I read implies that is done because they pay you to cover the tax liability generated.  That did not happen here - my net pay was $0 for this transaction.

[fanfare]

If wages are taken to cover your part of the insurance

then I can see withholding would be charged. withholding is not a tax.

My brother in law say his company does this for his healthcare, a different benefit, but his W-2 doesn't show the details.

So I can't figure out how much he is paying.

So far, he's been unable to supply me a paystub. !

@Spanky 

[Spanky]

I agree that tax should have been withheld, but I think the tax should only be on the $268 of imputed income.

I really don't care what they withheld on the stub, but I do care about how much they included in my taxable income.  I contend that it should only be the $268 for the GTL, but Box 1 includes the $268 plus the $141.39 tax withheld and added to the $268 GTL premiums.  My pay stub looked like this:

Excess Life Imputed Gross-up = $409.39 (the actual imputed income s/be $268 = $13.40 x 20 pay periods)

Taxes Withheld = ($141.39)

Post Tax Deduction = ($268.00)

Net Pay = $0.00

[DMarkM1]

The logic is the same as taxing any income.  For example, box 1 wages include the amount withheld for taxes; it is all taxable income and you pay the taxes out of that income.  The amount withheld for taxes is just an amount of your income you are making a tax payment with as you go and you get credit for that already made payment on your tax return.  

[Spanky]

I'm sorry - I still don't see how that explains why the $141.39 withheld for taxes is being reported as income?