Can imputed income be taxed and also be deducted from your paycheck as a post-tax deduction?

Forum|Forum|7 years ago
June 7, 2019
1 reply
3 views

I added my domestic partner to my health insurance earlier this year. I understand that the Fair Market Value of my employer's contribution to the health plan is a taxable benefit to me. I also understand that the bi-weekly contribution I have to make to the insurance plan is a post-tax deduction to me. However, my employer is also deducting the FMV from my net pay. For example:

Gross Pay: $1000

Non-Taxed Deductions: $100

Value of Employer Paid Insurance on DP: $175.00

New Taxable Income: $1075

Taxes: $232

After Tax DP Insurance Premium: $75.00

After Tax Taxable Benefits - $175.00

Net Pay: $593.00

I can't seem to get a straight answer from my HR or payroll department. But something seems off to me and I can't seem to quite understand what's happening.

Opus 17

Level 15

Cash wages $1000

Pre-tax deductions -$100

Tax withholding -$232

After-tax deduction -$75

Total cash to you = $593

The additional $175 of imputed income is not actually money that you receive. It is reported to the IRS as taxable income because it is a benefit that is not eligible for a tax deduction. But it doesn't change your cash wages.

Another way to look at it is:

Value of your compensation (cash wages plus benefits) $1175

Pre-tax deduction for partner insurance (company share) -$175

Other pre-tax deductions -$100

Withholding -$232

After-tax deduction for partner insurance (your share) -$75

Net cash in your pocket = $593

Note that the imputed value of insurance will go away if you get married.

The same calculation would apply if you received certain other taxable benefits from the employer, such as personal use of a company car. If the company allows you to use a business car for personal use, the value of the personal use is added to your taxable income on your W-2 even though it is not part of your take home pocket money wages.

adyvillegasAuthor

Level 2

I'm still not clear. My employer is taxing me on the value of the health insurance, since my taxes increased when this change was implemented. I think it's roughly $80-$90 extra in taxes. However, under the "deduction" part of my paycheck, they deduct my taxes, post-tax deductions for the insurance premium plus some other things and as a separate line they also deduct the same $175.00 that they increased my taxes by. I'm having a hard time understanding this concept. The numbers I put up are made up, but my take home pay is roughly $400 less per pay period and the only difference is the value of the insurance which is over $300 per pay period.