5 Steps to Set Up SAP HCM Configuration for Imputed Income Calculation

  • by Ashwini P. Gokarn, Senior ERP Analyst, Dart Container Corporation, US
  • October 9, 2017
Understand how standard SAP configuration can be implemented and tested for imputed income calculation. This guide explains the key configuration steps required to set up the imputed income calculation related to configuration and validation in the payroll results table.
Learning Objectives

By reading this article, you will learn how to:

  • Set up a benefits life insurance plan for imputed income calculation
  • Set up payroll configuration to support group term life insurance (GTLI) processing
  • Validate wage types through payroll testing

Key Concept

Section 79 of the US Internal Revenue Code (IRC) requires employers to calculate taxable income for employees who receive more than $50,000 in group term life insurance (GTLI) coverage and report it on the employee’s W-2 form. In the same way, dependent GTLI is considered by the IRS to be taxable if the insurance coverage amount exceeds $2,000 per dependent. If the benefit is greater than $2,000, employees must include the cost of the entire employer-provided coverage as income.

Employees who are covered by an employer-provided benefit greater than $50,000 must pay taxes for the value of the excess benefits. The amount of taxable income on coverage in excess of $50,000 (employee) or $2,000 (dependents) is known as imputed income. If a dependent term life plan is an employer-paid plan and the amount of coverage for dependents is equal to or less than $2,000 for each dependent, the value of the premium is not taxable as imputed income. If coverage for any dependent exceeds $2,000, the cost of the coverage is considered taxable as imputed income. Imputed income for dependents is also determined by using Table 1 rates (on the IRS website).

I walk you through the detailed steps required to complete the configuration for the imputed income calculation so that you can understand the source of calculation for the imputed income and validate the payroll results. Knowledge of basic payroll concepts is necessary for understanding this article.


Ashwini P. Gokarn

Ashwini P. Gokarn is a Senior ERP analyst at Dart Container Corporation, US. Ashwini is certified as an SAP HCM Solution Consultant and SAP Payroll Consultant and holds a master's degree in Information Systems. Ashwini has eight-plus years of SAP experience and expertise in SAP HCM full life cycle implementations, upgrades, and support projects for SAP PA/OM, SAP Benefits, SAP Payroll, and SAP SuccessFactors modules.


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