Domestic Partner Coverage Cost

[Guest jpastwick]

Hi -

Does Domestic Partner coverage need to be deducted post-tax, or can it be deducted pre-tax?

I have seen on another site where someone had a client who was charging it all pre-tax, but I'm being told (and it has been my understanding) that it must be deducted post-tax.

On the same note, if it is a post-tax deduction, is only the additional premium for the domestic partner charged post-tax, or is the entire amount?

Can someone clarify?

Thanks much!!!!!

[Sandra Pearce]

Unless the domestic partner qualifies as a dependent by IRS regulations the premium must be taken after taxes. Additionally the fair market value of the employer's portion of the insurance is taxable income to the employee.

[Guest jpastwick]

Thank you!

Which part of the cost is post-tax? The entire payroll deducted premium, or just the difference between the employee-only & employee + domestic partner coverage?

Let's assume that the domestic partner does not meet IRS requirements for spouse or dependent.

As for fair market value, is there a benchmark provided by the IRS or DOL to use? I wouldn't think so, but you learn something new every day.

[Sandra Pearce]

The premium paid for the domestic partner (in the case of our plan it would be the difference between employee only coverage and family coverage) would be after tax premium.

For a self funded plan the fair market value is considered to be the plan's COBRA rate less the 2% administrative fee.

[GBurns]

Sandra,

Can you provide a cite or reference that would explain why the COBRA rate should be used rather than some other calculated rated?

Also, do you have any guidance regarding how to calculate the COBRA rate?

[Sandra Pearce]

I am basing my answer regarding the determination of fair market value of premium on the guidance given by the San Francisco Commission on Human Rights Commission. "Where the premium is difficult to determine, for example where an employer is self-insured, the fair market value may be determined by using the COBRA rate minus any administrative fees." Self-insured plans use past claims history and actuarial assumptions to determine rates, including COBRA rates. There is not a regulation to address the calculation. There might be IRS letter rulings on the subject of establishing COBRA rates for self-insured plans but I do not have a copy of one.

[Guest jpastwick]

New thought -

How do you handle a "Brady Bunch" situation (minus the marriage), where the Domestic Partner AND their child(ren) reside with the Employee?

Can these children be considered dependents, even if the Employee has no legal obligation to them (eg: guardian, step-parent, etc.)? I have not been able to find anything on this, except to use the 152 regs regarding what makes a person a "dependent". Is this sufficient a) to add the child(ren) to the plan, and b) allow the child(ren)'s premium to be pre-tax? If so, how in the world to you pro-rate the amounts for pre- & post-tax deduction?

[Sandra Pearce]

In our plan we state, "Children of a Domestic Partner may be considered eligible on the same basis as children of a legal spouse, with the same rights as children of a legal spouse, with the exception that they will not be extended COBRA continuation privileges upon termination of coverage." These children must be unmarried, natural children or adopted children of the Domestic Partner, must live with the employee, be under age 19 (or in school full time up to age 24) and the employee must provide over half of the child's support.

We only have employee coverage and family coverage. The tax would be taken on the difference between the two.