If the company pays for medical insurance for someone who is not your legal tax dependent or your spouse, then the value of the insurance is considered part of your taxable income. This is called imputed income. You don’t have to do anything different, because it will all be reported on your W-2. But you should understand the financial implications of the arrangement.
For example, let’s suppose that the cost of a single insurance plan is $500, and the company pays half. That would mean that the company pays $250 for your benefit, and you have $250 taken out of your check before taxes. Now let’s suppose that the cost of a two person policy is $1000, and the company will again pay half. Since the other covered person is not your spouse or tax dependent, you will pay $250 for yourself that will be taken out of your check before taxes, but the $250 that is taken out of your check for your partner‘s coverage will be taken out after taxes. The $250 that the company pays for your benefit is tax free, but the $250 the company pays for your partner‘s benefit will be considered part of your taxable income even though you never actually get the money in your own hands. Since it is considered part of your taxable income, the company will have to withhold federal, state, Social Security, and Medicare tax on that money. At the end of the year when you get your W-2, the value of the company paid medical insurance for your partner will be included in your W-2 taxable income.
Since the $250 that you pay for your partner’s benefit is after tax and the $250 the company is paying for your partner’s benefit is part of your taxable income, you can include $500 per month as a tax deductible medical expense in your itemized deductions on schedule A.
Whether or not you actually get any tax benefit from itemizing your deductions will depend on your total medical expenses and the total of your other deductions.
You will of course, have to get the correct figures from your employer as to the amount of income that will be added to your wages for this benefit.
The imputed income will be included in your W-2 by your employer and you won’t have to do anything special on your tax return, except that you may want to list the taxable part of the benefit as a deductible medical expense.
If your partner was your tax dependent, the medical insurance benefit would be tax free. To be your tax dependent, your partner would have to live in your household for the entire year, and you would have to provide more than half your partner‘s total financial support, and your partner could not have more than $4300 of taxable income.
If you were to get married, you would have 60 days to notify your employer of the change in your circumstances. Going forward from the date of the marriage, the medical benefits would be tax-free and no longer considered part of your taxable income, and your contributions would all be pre-tax. However, medical benefits from earlier in the year before you were married will still be considered part of your taxable income.
