Failing to report imputed income accurately can lead to significant risks for employers, including IRS penalties, fines, employee disputes, and damaged reputation. The IRS treats underreporting as a serious compliance issue, particularly when fringe benefits are substantial or recurring. Businesses may face audits, back taxes, and even interest on unpaid payroll taxes if discrepancies are discovered.
Aside from financial repercussions, employees might be confused or upset when they discover unexpected tax liabilities. That’s why transparent communication and accurate tax reporting are essential. Implementing a compliance-oriented payroll system or outsourcing payroll and HR functions to an employer of record like 1EOR mitigates these risks. With 1EOR, you gain access to professionals who ensure every aspect of imputed income is tracked, valued, and reported according to IRS standards.