What does imputed income mean on W-2 after layoff? Former employer still sending tax forms

This is actually pretty common after leaving a job where you had benefits. "Imputed income" usually refers to the value of benefits you received that aren't in the form of direct cash payment. The most common reason for getting a W-2 with imputed income after leaving a company is for life insurance coverage. Many companies provide basic life insurance coverage (often 1x your salary) as a benefit, and this coverage sometimes extends for a period after termination. The IRS considers the premium the company paid for this extended coverage as taxable income to you, even though you never received that money directly. That's what "imputed income" means - it's adding value to your taxable income for benefits you received. Check the amount on the W-2. If it's relatively small (like a few hundred dollars), it's almost certainly for continued life insurance coverage or some other similar benefit that extended beyond your employment.

I had the exact same issue after leaving my company of 15 years. Was totally confused by the W-2 until I talked with a tax document analysis tool I found called taxr.ai (https://taxr.ai). You upload your documents and it explains exactly what each form means and why you received it. For me, it turned out to be imputed income from continuing health insurance coverage through COBRA that my former employer subsidized for 6 months after my departure. The tool broke down exactly what it meant and how to report it properly, since it wasn't obvious from just the W-2 itself what benefit was generating the imputed income.

Just wanted to follow up - I tried that taxr.ai site after seeing this thread. In my case, I had received a strange 1099-MISC from a former employer that didn't make sense to me. Uploaded it and found out it was for a settlement payment from a class action lawsuit I'd forgotten I was part of! The explanation was super clear and saved me from having to call the company's HR department, which would have been awkward since I left on not-great terms. Going to use it for all my tax documents this year since it was much easier than trying to Google each form code and figure out what everything means.

If you're trying to get answers about this W-2 or imputed income directly from your former employer, good luck getting through to anyone who knows anything. I spent 3 weeks trying to reach someone at my old company about a similar issue. Finally used Claimyr (https://claimyr.com) to get through to an actual IRS agent who explained everything. They have this system where they call the IRS for you and when they reach an agent, they call you back. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that imputed income is common after employment ends and explained exactly how to report it. Saved me from the frustration of trying to get someone at my former company to explain something they probably don't understand themselves.

I take back what I said. I just tried calling the IRS directly about a similar imputed income issue and was on hold for 2+ hours before getting disconnected. Decided to try Claimyr out of frustration and got through to an IRS agent in about 45 minutes. The agent explained that in my case, the imputed income was from a continued health benefit during my severance period. She confirmed I was reporting it correctly and even caught another issue with my return I would have missed. Definitely worth it compared to wasting an entire day on hold just to get disconnected.

Another possibility for imputed income - do you have any company stock or stock options that vested after you left? Some companies have provisions where equity continues to vest for a period after termination, especially in cases of layoffs. The value of vested stock awards would be reported as imputed income.

Anyone know how this affects my 401k? I'm in a similar situation where I got laid off and have a 401k with the old employer. Will taking distributions from that generate imputed income W-2s too?

Based on your description of receiving severance in 2023 and having a $2,800 W-2, this is most likely related to those restricted stock units (RSUs) that Victoria mentioned. Many companies have "accelerated vesting" or "continued vesting" provisions in their equity agreements for layoffs, where your unvested stock continues to vest for a period after termination. The key thing to understand is that when RSUs vest, the IRS treats the fair market value of those shares as regular W-2 income, even though you didn't receive cash. Your former employer is required to report this and withhold taxes just like regular salary. Check if there's any federal or state tax withholding shown on this W-2 - if so, you'll get credit for those withholdings when you file your return. Since you strategically timed your severance for tax purposes, you'll want to factor this additional $2,800 of income into your 2023 tax planning. It's treated exactly like regular wages for tax purposes, so it will be subject to your marginal tax rate. The good news is this is likely a one-time occurrence unless you have more equity that continues vesting in 2024.