“Imp Income” on your paycheck stands for imputed income, and “RTC” is typically your employer’s payroll code for the specific benefit generating it (often group-term life insurance, sometimes shortened from a phrase like “reportable taxable coverage”). It’s the dollar value of a non-cash benefit your employer gave you that federal tax law treats as wages. You never received cash for it, but the amount is added to your taxable pay so the right income, Social Security, and Medicare taxes get collected.
Why a Non-Cash Benefit Shows Up as Wages
Federal tax law defines gross income as “all income from whatever source derived,” which includes compensation in forms other than cash.1Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined When your employer pays for something you’d otherwise buy yourself, that saved expense increases your economic well-being the same way extra cash would, and the IRS treats the two situations equally.
A fringe benefit escapes tax only when a specific provision of the code excludes it. The code carves out exclusions for things like qualified transportation, working condition fringes, and certain health coverage.2Office of the Law Revision Counsel. 26 USC 132 – Certain Fringe Benefits Anything that doesn’t fit an exclusion has its value “imputed” to your wages. That imputed amount is subject to federal income tax, Social Security tax (6.2%), and Medicare tax (1.45%), just like your regular pay.
What’s Likely Generating the Line on Your Stub
Group-Term Life Insurance Over $50,000
This is by far the most common source of imputed income and the most likely explanation for a small recurring “Imp Income” or “RTC” line. Your employer can provide up to $50,000 of group-term life insurance coverage tax-free.3Office of the Law Revision Counsel. 26 USC 79 – Group-Term Life Insurance Purchased for Employees Any coverage above that threshold generates taxable imputed income.
The taxable amount isn’t the actual premium your employer pays. The IRS uses its own cost table (Table I) that assigns a monthly cost per $1,000 of excess coverage based on your age.4Internal Revenue Service. Group-Term Life Insurance A 42-year-old with $150,000 of coverage would have imputed income calculated on the $100,000 excess at $0.10 per $1,000 per month, adding $120 to annual taxable wages. A 62-year-old with the same coverage would owe tax on $0.66 per $1,000 per month, or $792 annually, because the table rates climb steeply with age. That’s why the same coverage produces a much bigger line on an older employee’s stub.
Personal Use of a Company Vehicle
If your employer provides a car and you use it for anything beyond business, the personal-use portion is imputed income. Commuting counts as personal use, and so do errands and weekend trips. Employers use one of several IRS-approved methods:
- Commuting valuation rule: each one-way commute is valued at $1.50. Five days a week for 50 weeks adds $750 to your taxable wages.5Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits
- Cents-per-mile method: each personal mile is valued at the IRS standard mileage rate, 72.5 cents per mile in 2026, available only for vehicles with a fair market value of $61,700 or less when first made available.6Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile7Internal Revenue Service. The Standard Mileage Rates and Maximum Automobile Fair Market Values Have Been Updated for 2026
- Annual Lease Value method: the employer looks up the vehicle’s fair market value in an IRS table that assigns a fixed annual lease value, then multiplies by the percentage of personal use.8Internal Revenue Service. IRS Notice 2021-7 – Automobile Lease Valuation Rule
Health Coverage for a Domestic Partner
Employer-paid health coverage is normally excluded from your income for you, your spouse, your tax dependents, and your children through age 26.9Office of the Law Revision Counsel. 26 USC 106 – Contributions by Employer to Accident and Health Plans It does not automatically cover a domestic partner. If your employer extends coverage to a domestic partner who doesn’t qualify as your tax dependent, the employer’s share of that partner’s premium is imputed income to you. This one catches people off guard because it feels the same as spousal coverage, but the tax treatment is different.
Below-Market Employer Loans
If your employer lends you money at an interest rate below the Applicable Federal Rate, or charges no interest, the difference is imputed income.10Office of the Law Revision Counsel. 26 USC 7872 – Treatment of Loans With Below-Market Interest Rates A $50,000 interest-free loan when the applicable rate is 4% produces roughly $2,000 in imputed income for the year.
Tuition Assistance Over $5,250
Your employer can pay up to $5,250 per year toward tuition, fees, books, or student loan payments tax-free.11Office of the Law Revision Counsel. 26 USC 127 – Educational Assistance Programs The 2026 limit is still $5,250, with inflation adjustments beginning in 2027.12Internal Revenue Service. Rev. Proc. 2025-32 Anything above the ceiling in a calendar year is imputed income.
Moving Expense Reimbursements
Under current law, employer-paid moving expenses are imputed income for nearly all civilian employees. The exception is for active-duty members of the Armed Forces who move because of a military order, and employees of the intelligence community relocating under similar circumstances.13Internal Revenue Service. Topic No. 455 – Moving Expenses for Members of the Armed Forces and the Intelligence Community
If none of these match anything you receive from your employer, ask HR or payroll what the “RTC” code specifically maps to at your company. Codes are set by the employer’s payroll system and vary from one workplace to another.
Why Your Take-Home Pay Is Smaller
Since imputed income isn’t cash, your employer can’t withhold taxes directly from a benefit you never received as money. The standard approach is to reduce your regular paycheck to cover the tax withholding on the imputed amount. If your employer imputes $200 in a pay period, the taxes owed on that $200 come out of your cash paycheck. Some employers instead “gross up” the benefit, covering the employee’s tax burden themselves. Grossing up is generous but not required.
Where It Lands on Your W-2
At year-end, your employer folds the imputed amount into Form W-2 as if you’d been paid it in cash. It appears in Box 1 (wages, tips, other compensation), Box 3 (Social Security wages), and Box 5 (Medicare wages).14Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits You owe income, Social Security, and Medicare tax on the value.
Certain types are also broken out separately in Box 12 under letter codes. The most common one employees see is Code C, which reports the taxable cost of group-term life insurance coverage over $50,000.15Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 Other Box 12 codes reflecting imputed income include Code V (income from exercising nonstatutory stock options) and Code Z (income from a nonqualified deferred compensation plan that failed tax code requirements). The Box 12 entries don’t add extra tax on top of what’s already in Box 1; they just tell the IRS where the income came from.
Effects Beyond the Paycheck
Because imputed income increases your Box 1 wages, it can push you into a higher marginal bracket if you’re close to a threshold. It also increases Box 3 Social Security wages, but only up to the 2026 Social Security wage base of $184,500.16Social Security Administration. Contribution and Benefit Base If your regular salary already exceeds that ceiling, more imputed income won’t trigger additional Social Security tax, though it stays subject to the 1.45% Medicare tax (and the 0.9% Additional Medicare Tax if total wages exceed $200,000).
State tax treatment generally follows federal rules. Most states that tax income start from federal gross income, so imputed income is usually taxable at the state level too. A few states have their own exclusions, and states without a personal income tax don’t tax it at all.
One practical detail worth knowing: your reported W-2 wages feed into things like mortgage qualification, income-driven student loan repayment plans, and eligibility for certain tax credits. A few hundred dollars from a small life insurance imputation won’t move the needle. A large amount from a company car or below-market loan can.