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Domestic Partner Benefit Coverage: Imputed Income Calculations


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IRS guidance on how to price coverage provided to domestic partners, for imputed income purposes, has been doled out piecemeal over the years via private letter rulings.

Among other options the PLRs provide that amount includible in the employee’s gross income may be calculated as equal to the difference between the amount the employer would contribute for the employee alone, and the amount the employer would contribute for coverage of an employee and a spouse or family, as applicable (i.e., excluding employee contributions). This is a calculation method that will be quite a bit lower than using COBRA premiums as a standard.

More recently there has been guidance in Notice 2011-28 and now 2012-9 on how to value coverage for purposes of reporting the value of group health coverage only, not taxing it, on Form W-2. It is not clear to me whether or not the W-2 guidance for reporting only supplants the prior PLR guidance on imputed income calculations of what is actually taxed. In general the PLR guidance on what is taxed, is narrower than the W-2 guidance on what is reported “for information purposes only.” For instance the PLR guidance allows exclusion of the employee’s portion of contributions whereas the new guidance on W-2 reporting specifically provides that employer and employee contributions towards coverage must be included in the value for reporting purposes.

Technically of course the PLRs are only citable authorities for the taxpayers who obtained them but I am wondering the degree to which payroll departments that have been relying on PLR-sanctioned methods of calculating imputed income, are switching over to one of the valuation methods cited in Notices 2011-28 and 2012-09.

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