My domestic partner is being taxed $1000/month for imputed income since he added me to his health insurance plan. Can he get this money back in his return next year?

[kmfaber11]

I recently became unemployed so my domestic partner added me to his health insurance plan.  he is now being taxed nearly $1,000/month in addition to the $80 we pay for my health insurance.  I would like to find out if he can recover this money in his taxes next year.

[Opus 17 · Accepted solution]

No.

The money that your partner's company is paying for your insurance is treated as if it was income to him; as if he got a raise that was then used to pay the insurance.  This is the IRS ruling because it is a money benefit that your partner gets for working there that does not qualify for special tax treatment under the law.  (He would equally be taxed if he were allowed to use a work-owned car for personal purposes.  Any money benefits you get for working are taxable unless they fall into a legally defined tax-preferred benefit arrangement.)

However, if you get married, then you can be added as a spouse, and health care premiums for spouses are not subject to the same imputed income tax.  The imputed income should stop as of the date that you are removed from the health plan as a DP and added as a spouse.  Normally, employees can only change their health plans during the "open enrollment" period once a year, but a marriage is a qualifying event that allows you to make a change outside the open enrollment period, as long as you notify the benefits office within 30 days of the qualifying event.

[clinkletter]

so my now wife was on my health plan in 2018 and i was getting taxed for it but we got married in october 2018 so when that happens, can we recover all that "imputed income" for the prior 9 months or does the IRS only see you as married from that point forward?  just want to know how i can recover those costs since i got married and if allowed, how do i do it. does turbo tax automatically do this because how do my w2s indicate this?

[Opus 17]

It can’t be recovered.  You need to inform your employer of the marriage as soon as possible so they change the tax treatment going forward, but there is no recovery procedure, since the covered partner’s benefits were still taxable income at the time.  

[bwa]

I would like to find out if he can recover this money in his taxes next year.

The "imputed income" occurs when you add someone to your health insurance who does not qualify as your dependent.  If he/she doesn't qualify as your dependent the amount is taxable and you can't recover it on your income tax return.

If he/she does qualify as your dependent the imputed income should not be included in your income and, if it is, you can claim a deduction for the medical insurance paid for him/her if you itemize.  However, to qualify he/she must live with you all 12 months of the year, you must provide more than 1/2 of their support, and they must earn less than $4,050 in income subject to tax.  If you recently became unemployed, it's likely that considering the entire year, you don't meet the underlined portion.

[SweetieJean]

"they must earn..."
The $4,050 also includes any unemployment comp and unearned (but taxable) income.

[YogaSnaredrummer]

So, to further clarify this advice for my situation...

The domestic partner in my case became my spouse mid-year.  I reported it to my employer and they stopped imputing the income for the premiums.  So now we plan to file jointly as a married couple this tax year (2019) for the first time.  My spouse isn't my dependent, they're my spouse.  Do they still qualify for this itemization on our schedule A?  What line are we talking about specifically?

If we're talking about the Medical and Dental expenses Itemized Deduction, then don't you need to meet a 7.5% AGI requirement (for all medical expenses for the year) to enter anything into this box.  And when you do enter anything into that box, it's only what you were taxed on that rises above the 7.5% level (for TY 2019, it may have been 10% for TY 2018), not the whole amount.  So, for me, I believe that's still $0, yet I have a ton of extra imputed income in Box 1 of my W-2. :(

Right?

[hfang1989]

Hi, I have the same issue. However, my case is that I forgot to update health insurance information with my employer after we got married. Is there a way to fix it and get money back. Thank you.

[Opus 17]

---

@hfang1989 wrote:

Hi, I have the same issue. However, my case is that I forgot to update health insurance information with my employer after we got married. Is there a way to fix it and get money back. Thank you.

---

The only thing you can do is take a medical expense itemized deduction for any premiums you paid that you paid income tax on, that were paid for your spouse or dependents.  (Premiums from before the person became your spouse would not be deductible, unless the person qualified as your tax dependent.)  If you paid income tax on the employer and employee share of medical insurance premiums, you can list that as a medical expense as if the employer gave you a raise, taxed you on it, and you purchased the insurance.  Be sure not to list your own pre-tax premiums.  And because of the 7.5% rule for medical expenses, you might not actually get much benefit.

There isn't any other way I know of to change the imputed income rule if you failed to notify your employer in a timely manner.

[Sonee8888]

Can you tell me when this became a federal tax law? 

[Opus 17]

---

@Sonee8888 wrote:

Can you tell me when this became a federal tax law? 

---

Not exactly.  It has been the law probably forever that everything provided to an employee in return for their services is taxable wages.  This includes things like gift cards, incentives, and personal use of a company car, among other things.  (At my old employer, I got a $100 incentive for completing some healthy lifestyle activities, that's taxable income.  My ex-wife got a gift card from the grocery store chain she worked for to buy flowers or food for her mother's funeral, that's taxable income.  If you are allowed to use a company owned car for personal use on the weekends, the value of that personal use is added to your W-2 as taxable income.)

This applies to anything of value provided to the employee except for certain fringe benefits as described in publication 15-B.  Benefits that do not have to be taxed include company-paid medical insurance, company-paid parking, certain dependent care benefits, and a few other things, but only if the benefit is provided to the employee, their spouse, or their tax dependents (usually children, but not always).  If the company provides a benefit to someone who is not the employee, their spouse or their dependent, because of the employee's service, the value must be included in the employee's taxable income. 

Here's an article. 

https://www.psfinc.com/articles/domestic-partner-benefits-and-imputed-income/

Now, there were some complications prior to the Supreme Court Obergefell decision legalizing same sex marriage.  Some states created "domestic partnerships" (starting with CA in 1999) that would allow state tax and other benefits for same-sex partners who registered as domestic partners.  This created conflicts between state and federal law, and between states that had DP laws and states that didn't.  I honestly can't tell you if the IRS granted exceptions to the rules about taxable benefits for DPs in states that allowed DPs, because I haven't followed the issue that long. The IRS itself has a complicated history with domestic partnerships.  In 2006, they ruled that California taxpayers who were in DPs could not file as married under the community property laws, and then reversed themselves in 2010 and said that couples in DPs must follow community property rules on their tax returns.

What is clear is that the rules became crystal clear after the Supreme Court Obergefell decision in 2015. Because that decision legalized same-sex marriage in all 50 states, the tax law is now easy to apply.  If a couple is married (same sex or hetero), then the employer can provide tax-free benefits to the spouse.  If a couple is not legally married (same sex or hetero) then the employer can't provide tax-free benefits to the employee's partner unless the partner is also a tax dependent of the employee.   The fact that any two people can now legally marry, removes the need for special tax treatment of unmarried couples, regardless of whether or not they register as DPs. 

[ryryry4]

Is there a (relatively) easy way to calculate the real $ cost to the employee of this imputted income? SAy the imputted income id $8900.

Thanks

[Opus 17]

@ryryry4 

What do you mean by “real cost?“ The real cost of the imputed life insurance is whatever the employer tells you it is. It is whatever premium the employer is paying to cover the domestic partner.

[VolvoGirl]

Real cost? It is added into your income and you will pay tax on it at your regular tax rate.  Like 10 or 12% or more.