premiums for domestic partner taxable?

[Belgarath]

A domestic partner situation, man and woman. He has family health insurance coverage since he has children. Can he add his partner to the policy and keep the total premium as a tax fee benefit (his employer pays 100% of the family premium)?

My (limited - I don't work with health insurance) understanding is that a domestic partner’s share of the premium cannot normally be a tax fee benefit and he should have her share of the premium added to his pay to be taxed as regular income. This seems simple if he was going from a single to a 2 person plan - the additional premium would be taxable. But since he already has family coverage, does it matter if his partner comes on the plan and he still receives the insurance as a tax free benefit? On the one hand, it seems like some portion should be taxable, as it would be if there were just the two of them. On the other hand, since it is family coverage, and the premium is currently tax free and will not change, it also seems ridiculous to suddenly consider a portion of it as taxable.

Maybe my fundamental understanding off off base to start with...

Thanks.

[Flyboyjohn]

You're correct that the premium for coverage of unmarried domestic partners is not tax free but if the premium is exactly the same before and after adding the DP I think it's reasonable to take the position that none of the premium is taxable.

[GMK]

Seems reasonable to me, too, and it may be correct, but I'd get a lawyer to sign off on it.

Back when coverage for adult children to age 26 came in, our state had coverage to age 27, and there was a time when we had to deal with imputed income for certain premiums. The laws got updated, and the imputed income (for a few months) was erased as if it didn't happen, and employees got credited back for whatever it cost them.

The point is that this is not necessarily a trivial or reasonable situation. Ridiculous happens.

[QDROphile]

" I think it's reasonable to take the position that none of the premium is taxable."

Despite the logic, I think the position is aggressive.

[jpod]

Assuming that the DP is not the employee's tax dependent, I believe the IRS has spoken on this and measures the imputed income on the basis of the value of the coverage for the DP, not the cost of the coverage. Whether that is right or wrong is kind of beside the point, as the employee's employer is either going to report some amount as taxable on the W-2 or not.

[Belgarath]

Thank you all for your replies.

I did some additional searching, and found what I believe is a reasonable and apparently IRS approved method, although not the ONLY method, of calculating the imputed income, which would be:

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). When the particular coverage provided to the individual is group medical insurance coverage, PLRs provide that the amount includible in the employee’s gross income can be the FMV of the group medical coverage. Employers can, therefore, impute income for domestic partner benefits coverage using group rates as opposed to, for example, the higher COBRA individual rate.

So, as I understand it, here’s an example of how it might work, with numbers I pulled out of the air for purposes of illustration.

Employer health coverage – employer contributes $6,000 per year for single employee; $11,000 per year for employee and spouse, and $15,000 per year for family coverage.

Regardless of the fact that the employer currently pays $15,000 for this employee due to the children, the employee will nevertheless be taxed on the imputed income of $5,000 per year if the Domestic Partner is added to his coverage.

Since the Windsor decision may not apply to health benefits, it might be a different taxation scheme for same-sex partners. I didn't go that far in looking into this.

Now, this is nothing I have any involvement with, so you can bet we will refer the employer to tax counsel, but this was just to be "helpful" to a client - and I appreciate your earlier responses.

[jpod]

I believe the Windsor decision, coupled with the IRS' guidance thereafter, does apply for all tax purposes.

[Silver70]

This is also how we handle it. The employee is imputed the cost of adding a person from Single to Family.

I have a question that touches on this.

Does the imputed amount get added to the Employer Sponsored Health amount that is on the W-2?

-John