How Imputed Income Is Used to Calculate Social Security Taxes

In addition to child support, alimony, and discount bonds, imputed income is also used to calculate Social Security taxes. To understand how this calculation works, take a look at some examples. If you don’t have an accountant on your team, learn more about imputed income from your employer. It can save you thousands of dollars in tax liability! In this article, you’ll learn why understanding imputed income is important.

Imputed income is used to determine child support

While an individual’s employment status is not the only factor considered by a judge in determining child support, imputed income is a vital piece of information. A court will consider three factors to determine if a parent has the earning capacity to pay child support. These factors include willingness to work, education level, and the local job market. Depending on these factors, the court will be able to determine whether the parent is willing and able to work.

The calculation of income uses their alleged income instead of their actual income. If the income is zero, they can still be ordered to pay child support, even though they do not actually earn anything. In addition, a parent who is laid off or unemployed will not have their income attributed to them. Ultimately, the court will use actual figures to determine how much money the can reasonably earn.

It’s used to determine alimony

In determining alimony, the court may consider both parties’ past earnings and government statistics to calculate a realistic alimony award. The court may also look at the education level of each party and the job growth outlook for their industry to estimate what each party could expect to earn in the future. For example, Gloria may have earned $50,000 a year for the past five years. If you know her current salary, the court may consider that she will make an even higher amount in the future.

The purpose of imputing extra income to a recipient spouse is to justify a higher amount of alimony. The amount of extra income imputed should reflect an increased cost of living. Since dissipation does not redistribute wealth, the party who is paying alimony must have the ability to dissipate that additional income. This protects the recipient spouse’s assets, but also reduces the payer’s income and wealth.

It’s used to calculate discount bonds

When calculating interest on a non-interest-bearing note, the first step is to figure out the rate of return on the instrument. This rate is calculated by subtracting the face value from the initial price and dividing that figure by the number of years it is expected to last. After determining the rate of return on the instrument, you can apply that figure to discount bonds. However, when you are calculating the interest on a discount bond, you must also calculate the alleged interest on the actual amount you are owed.

The IRS has a formula that assumes interest is paid on loans between friends or family members. If a father grants $50,000 to his son, the father does not have to pay interest on this money, and the federal short-term rate is 2 percent, the son should owe the mother $1,000 in interest every year. Nevertheless, the IRS assumes the mother collects the interest from her son and lists it as income.

It’s used to calculate Social Security taxes

Imputed income is the cash value of non-cash benefits and services that you receive from your job. The IRS classifies these benefits as employee pay. However, not all of these benefits are included in imputed income. For example, you may not get any benefit if you are paid in cash, but you can still claim these as imputed income. For this reason, you may want to consider whether your employer offers these types of benefits.


Imputed income is reported on Form W-2 along with your check stub maker gross wages. Imputed income is reported in box 12a through 12d. You can find detailed instructions for adding imputed income on the back of copies C and 2. This type of income is subject to Social Security and Medicare taxes. The exact amount depends on your job, but it usually varies from $1,200 to more than $3,600.

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