Imputed income domestic partner Married mid year

[hellothere22]

I have included my domestic partner on my insurance and see imputed income on my paystub. If we get married in the middle of the year will we get reimbursed for the imputed income paid before that? Or do we not get anything back?

I was under the impression that tax-wise, marriage counts for the whole year as long as it happens before Dec 31, but I could see this being a special case because it involves the company paying for a benefit on my behalf.

[Critter-3]

That is a rule for the tax return but not for the imputed income situation .... ask your employer but the answer is probably no. 

[Opus 17]

No. This is one situation where the marriage is not retroactive to the whole year.  Medical insurance premiums that are paid by your employer to cover someone who is not your legal spouse or your tax dependent (such as a domestic partner) are considered taxable income to you, even if you never see the actual money because it is sent directly to the insurance company.  You can stop the imputed income situation if you inform your employer of the legal marriage within 60 30 days of the marriage.  But the money that was previously counted as taxable income because the person was not your legal spouse at the time the insurance premiums were paid (imputed income) is still counted as taxable income to you.

[Edited to correct: You have to notify the employer benefit plan within 30 days of a "change of status event" to change your plan.  Otherwise, you have to wait for the next open enrollment. US Treas. Reg. 1.125-4.]

[aherasimovich]

Can you please point to official IRS document which says that is 60 days? I tried to do in  company where I work but they told me it is 30 days, but I missed by 5 days 🙂 

[Opus 17]

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@aherasimovich wrote:

Can you please point to official IRS document which says that is 60 days? I tried to do in  company where I work but they told me it is 30 days, but I missed by 5 days 🙂 

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Yes, I'm sorry, it is 30 days.  I may have been thinking of a different tax provision.  Under Treasury Regulation 1.125.4, you have 30 days after a "change of status" event to change your benefit election.  If you miss that window, you have to wait for the next open enrollment period.

https://www.law.cornell.edu/cfr/text/26/1.125-4

[aherasimovich]

Thank you for your information. We were married May 17th 2024, and my employer says we missed the 30 day window to change anything regarding insurance. My (now) husband was already on my plan as a domestic partner, so we don't need to change the plan per-se - we are just wondering if either: 1: the employer can/must change the imputed income calculation, or 2: on our 2024 taxes, can we manually adjust to counteract the imputed income tax we may pay for the rest of the year due to employer's inaction? It seems like whether I change status or not, the fact is that we are now married, and married couples need not count insurance as imputed income - right?

[Opus 17]

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@aherasimovich wrote:

Thank you for your information. We were married May 17th 2024, and my employer says we missed the 30 day window to change anything regarding insurance. My (now) husband was already on my plan as a domestic partner, so we don't need to change the plan per-se - we are just wondering if either: 1: the employer can/must change the imputed income calculation, or 2: on our 2024 taxes, can we manually adjust to counteract the imputed income tax we may pay for the rest of the year due to employer's inaction? It seems like whether I change status or not, the fact is that we are now married, and married couples need not count insurance as imputed income - right?

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The problem is not that "married couples need not count insurance as imputed income", the problem is that section 125 has strict time limits on when a spouse can be added to a tax-free benefit program.  If you miss the time limit, you can't add your spouse to a tax-free benefit program, so any coverage you are lucky enough to get must be taxable.   

Because this person is being covered not as a spouse or dependent, they are not covered by the section 125 30 day change rule (even though you are), so it may be possible to drop their medical coverage completely even though it is after 30 days.  That would stop the imputed income but would also leave them without medical insurance coverage until your next open enrollment period.  That might be unfeasible in your situation.  It also depends on how your employer's plan is worded (the employer may be permitted to drop DPs outside the normal window but they are not required to allow it). 

Because you are now (after May 17) paying for your spouse's insurance with after-tax dollars, you are allowed to list the premiums for their portion of the insurance (from May 17 onward) as an itemized deductible medical expense on your 2024 tax return.  You might get a tax deduction, depending on your total income, your total medical expenses, and your other itemized deductions.

I can't find any other way to mitigate the situation for you.  You may want to speak to a tax attorney or CPA on your own.  

[aherasimovich]

Thank you!

Quick follow up - there are two places I am being taxed here... as you said, I missed the QLE deadline to switch to a tax-free / pre-tax for my own contribution to the health plan.

However, my employer's contributions are still being counted as imputed income as well.

26 CFR § 1.106-1 makes it clear that "The gross income of an employee does not include the contributions that the employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness incurred by the employee, the employee's spouse..."
https://www.law.cornell.edu/cfr/text/26/1.106-1

It seems that this should no longer be counted as imputed income, regardless of the deadline. I can clean it up myself on my tax filing, except A: that's complicated and audit-prone, and B: I won't get my FICA taxes back unless the employer corrects it on my W2.

Am I correct that at the very least they should stop counting their contribution as imputed income as of May 17?

[Opus 17]

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@aherasimovich wrote:

Am I correct that at the very least they should stop counting their contribution as imputed income as of May 17?

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I don't believe this applies in your case because your spouse is not on your health plan as a spouse.  Per section 125, your spouse can only join your plan as a spouse using the 30 day rule or during the open enrollment period.

https://www.law.cornell.edu/cfr/text/26/1.125-4

If you think there is a conflict between section 106 and section 125 that should be resolved in your favor, you need to talk to an attorney or tax accountant.  I have not been able to find any documentation one way or the other of what is supposed to happen if you marry your domestic partner and miss the 30 day window.  

[bball617]

I'm in a similar situation. Married mid year and spouse was listed as a DP before, however... She has no income and meets the tax dependent qualifications. 

I've talked to my employer and they will not remove the imputed income paid in the beginning of the year from my tax base while she was a DP even though she would of been considered a tax dependent. I've tried and tried and they will not budge. 

Are my options to send in a Corrected W2 when I get it or file a 1099-misc and enter in the total imputed income( with a negative sign off course)

[Opus 17]

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@bball617 wrote:

I'm in a similar situation. Married mid year and spouse was listed as a DP before, however... She has no income and meets the tax dependent qualifications. 

I've talked to my employer and they will not remove the imputed income paid in the beginning of the year from my tax base while she was a DP even though she would of been considered a tax dependent. I've tried and tried and they will not budge. 

Are my options to send in a Corrected W2 when I get it or file a 1099-misc and enter in the total imputed income( with a negative sign off course)

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There is no recognized procedure to do either one.  You should have designated your partner as a qualifying dependent before the start of the year, either when you joined the company, or at the most recent open enrollment period.  Do you have proof that you enrolled your partner as a dependent and the employer got it wrong?  Or was the first time to tried to address this issue only after the marriage?

 If you enter negative income, that will remove the income from your taxable income but not from your social security and medicare tax wage base.  To correct the social security and medicare tax issue you would need to submit a substitute W-2 and then file form 843 to request a refund of the social security and Medicare tax.

Since there is no recognized procedure to do either one, I would contact a local tax professional for assistance.  You will need someone who will represent you if you are audited, which will probably happen if you dispute the imputed income.

[bball617]

My only options to put her on my insurance are spouse, domestic partner, or child so before we got married my only option was domestic partner.

The company is saying they will not keep track of tax dependent status's of domestic partners and will not adjust. They want me to fix on my tax return instead.

[Opus 17]

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@bball617 wrote:

My only options to put her on my insurance are spouse, domestic partner, or child so before we got married my only option was domestic partner.

The company is saying they will not keep track of tax dependent status's of domestic partners and will not adjust. They want me to fix on my tax return instead.

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There is no recognized procedure for this.  Just because your partner was eligible to be treated as a dependent, doesn't mean you can ignore the imputed income on your W-2 (and I don't fault the company for being conservative, although other companies will take dependent status into account).  You can try either of the two fixes you suggest, or speak to a tax professional in your area who will be prepared to assist you if you are audited.