Legal Definitions - imputed income

Imputed income refers to a value that a court or tax authority treats as if it were actual income, even if no money was directly received or if the benefit was provided in a non-cash form. It is a way of assigning a monetary value to a non-monetary benefit or to a person's earning potential, often for purposes like calculating taxes, child support, or alimony. The concept aims to ensure fairness and prevent individuals from avoiding financial obligations by intentionally earning less than they are capable of or by receiving valuable benefits that are not directly paid in cash.

Here are some examples to illustrate how imputed income works:

• Example 1: Child Support Calculation

  Imagine a situation where a parent, obligated to pay child support, voluntarily quits a well-paying job and takes a much lower-paying position, or even becomes unemployed, claiming they can no longer afford their previous support payments. A family court might look at this situation and determine that the parent is intentionally underemployed. The court could then impute income to that parent based on their previous earning capacity, their education, work history, and the prevailing job market for someone with their skills. This means the child support obligation would be calculated as if the parent were still earning their higher potential income, rather than their current lower income, to ensure the child receives adequate financial support.

• Example 2: Employer-Provided Benefits

  Consider an employee who works for a car manufacturing company. As a perk of their employment, the company allows the employee to lease a brand-new luxury car for their personal use at a significantly reduced rate, far below market value. While the employee isn't receiving cash, the substantial discount on the car lease is a valuable benefit. For tax purposes, the difference between the fair market value of the lease and what the employee actually pays might be considered imputed income. This "income" would then be added to the employee's taxable wages, and they would owe income tax on that non-cash benefit, as if they had received that amount in cash.

• Example 3: Spousal Support (Alimony)

  During a divorce proceeding, one spouse has a professional degree and extensive work experience but has chosen to work part-time in a field unrelated to their qualifications, earning significantly less than they could. If the court believes this spouse has the capacity to earn more and is capable of becoming self-supporting, it might impute income to them based on their full earning potential. This imputed income would then be factored into the calculation of spousal support, potentially reducing the amount or duration of support they receive from the other spouse, encouraging them to maximize their earning capacity.