Question: Could you provide a short employee-facing summary of the tax consequences for domestic partner health coverage?
Compliance Team Response:
For employers, we have much more detail available in our ABD Office Hours webinar Health Benefits for Domestic Partners: Review of the Tax and Coverage Rules for Employers.
Below is a short summary for employees.
Please be aware that the Company is required by applicable tax law to treat domestic partner coverage as taxable in the following manner:
- Post-Tax Payment: Your employee-share of the premium for your domestic partner’s coverage will be paid on a post-tax basis; and
- Imputed Income: You will receive imputed income for the fair market value of the employer-share of the premium for domestic partner’s coverage.
There are two ways that your domestic partner’s coverage could avoid all or some of the adverse tax consequences described above:
- Tax Dependent—Avoids Federal and State Income Taxes: If your domestic partner qualifies as your tax dependent under Internal Revenue Code §152 (as modified by §105(b)), your domestic partner’s coverage will be treated in the same manner as a spouse for both federal and state income tax purposes. You will avoid both adverse tax consequences listed above at the federal and state income tax level.
- Registered Domestic Partnership—Avoids State Income Taxes Only: If your non-tax dependent domestic partner is a Registered Domestic Partner under state law in the state in which you reside (note that not all states offer a Registered Domestic Partnership), your Registered Domestic Partner’s coverage will be treated in the same manner as a spouse to avoid both adverse tax consequences above for state income tax purposes only. Post-tax payment and imputed income will still apply for federal income tax purposes.
If you have any questions about these tax rules that the Company must follow pursuant to applicable tax law, we recommend that you consult with your personal tax advisor.
ABD Office Hours webinar Health Benefits for Domestic Partners: Review of the Tax and Coverage Rules for Employers
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).