Unrelated Domestic Partner Children

[Guest asking]

It's been a few years since I've kept up on health plan legislation, and am hoping someone has a quick answer to my question.

When a child of a domestic partner (who is not the employee's child) is covered under a sponsor's health insurance plan, should we be calculating imputed income on the coverage for that child?

In looking around at various articles, it seems to me the answer is "maybe". That in general, if the child has been living in the employee's household for at least one year, and the employee (or combination of employee and domestic partner) have provided at least half the support for that child, then yes. Otherwise, no.

Can anyone provide an update or clarification, please?

[QDROphile]

You need to zero in on whether or not the child is within the definition of "dependent" of the employee, and be wary of looking at combined support from the employee and the domestic partner. Then you need to distinguish between the premium paid for the taxability of amounts paid for the premium for health coverage (section 125 issue) and the taxability of the health benefits provided to the child (sections 105 and 106).

Sorry, not a quick answer. Quick answers usually require definite and complete facts and applicable stttled law. The law is the easy part here.

[Guest asking]

One of the "articles" I was referring to in my original note was a proposed reg to simplify the definition of a child dependent for all federal tax purposes, but was dated back in 2003. I didn't find anything to indicate if that was a settled issue or not.

The reason I'm asking is because our current benefits consulting firm doesn't provide the option on their enrollment web site to indicate that a particular dependent is the child of a domestic partner - they only offer "son" and "daughter". Prior to using this firm, we always differentiated between children who were not direct relatives of the employee (and imputed income for them, in accordance with the prescribed calculation.) Since we are now bringing the enrollments back in-house, I need to determine if we need to reinstate this calculation or not. (No question about the domestic partner themselves, just the child(ren).)

It seems odd to me that a national consulting firm with a fairly solid reputation in the benefits field would not be asking if children were qualified dependents or not, unless there was a very specific law change. However, I'm just not finding enough evidence to support this (maybe I'm not looking in the right places?) It seems to me that we should be asking this question, and imputing income accordingly. Any idea why the consulting firm would not be asking this question?

[QDROphile]

Maybe the plan is designed not to get into complexities by not allowing coverage of children of domestic partners, hence no way to identify or designate them.

Your 2003 proposed reg is obsolete. The applicable stautes have changed since.

[Guest asking]

The plan specifically includes children of a domestic partner (those not related to the employee), so that is not the answer, unfortunately.

I suspected the 2003 info was out of date.

[jsb]

We handle this by imputing income for DP dependents UNLESS there is a recognized, direct LEGAL relationship between the employee and the DP's dependents, such as adoption.

I do not want to become the "IRS QUALIFIED DEPENDENT" police and set up a process where an employee is trying to prove the IRS dependency status. I suppose you could use an affidavit or certification of some kind where the employee attests that the dependent is their legitimate IRS dependent, but I don't recall seeing any kind of ruling or advisory that specifically addresses DP dependency issues in cafeteria plans. I do not want to invite the controversy. When we get to the point of an employee insisting on the tax preferred benefit, I'll let my counsel determine if I am required to do so under applicable state and/or federal law, and move on accordingly.

Perhaps not very proactive, but at the moment I've only got about 40 DPs with coverage (not all with dependents), versus about 2800 retirees with rather pressing Medicare Part D concerns to deal with. The feds will eventually resolve all DP questions.

[Guest asking]

All we do is ask for a certification, and let it fly at that, as we are also not expecting to become the dependent status police. If a specific question is raised, we then ask for more documentation. However, I think we should make an effort to do it as correctly as possible, with the info provided by the employee. ie - we should at least give the employee the opportunity to tell us that a child does or does not qualify as their dependent according to IRS rules, even though we don't offer any help with making that determination, other than referring them to the IRS.

Re: retiree medical - thank goodness we don't offer it!