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Imputed Income

This is a complicated situation, so please bear with me.  Here are the facts.

1)  My partner is covered under my insurance plan at work, which would typically be reported as taxable imputed income.

2)  However, my partner qualifies to be my dependent, and I have planned to claim them as a dependent.


3)  When running scenarios of the best possible outcome for our taxes this year, I noticed that it would be far better for me NOT to claim them on my taxes.  I realize that this would mean that the value of my insurance premiums paid would be after tax not pre-tax, hence would require imputed income.


4)  I have the figures, it comes to $2,815 additional income for the year.


My question is, how can I report this?  I am not getting an answer back from my employer if they can do an amended W2.  How can I account for this additional $2815 on my taxes?  Can I use a 1099-MISC?  The paying of the tax is not the issue, it's how to report it that has me totally confused.


Thank you in advance.

2 Replies
Level 10

Imputed Income

@tax84  When you enrolled in benefits in the current year, your employer should have provided you the cost for the benefits.  Often the cost of family benefits if you have children may be no different having a partner.  If that's the case, there would be no added income.  If that's not ,the case, the employer should have already included the income in your w-2 for federal purposes.  It would be included as taxable fringe benefits and listed in box 1,3, and 5.  If your employer did not follow the low, you could always report it as other income if you want to follow the IRS law and in the interview you will claim it as business related income. 


Hope this was helpful.


For others who may not know the law:


Under federal tax law, the portion of an insurance premium that your employer pays for your coverage is not taxed as income. Federal law treats benefits for spouses, children and certain dependents the same way. However, a domestic partner is not considered a spouse under federal law. As a result, if you elect to have your partner covered under your plan, you will pay income tax and Social Security payroll tax on the portion of the insurance premium that your employer contributes to your partner’s policy.

If your partner is an IRS-qualifying dependent on your federal tax return, these benefits would not be taxed. To qualify as a dependent, your partner must receive more than half of his or her support from you. If your partner is a dependent, you might also be eligible for other favorable tax treatment. If you think that your partner might be your dependent under federal law, consult a tax professional.

Opus 17
Level 15

Imputed Income


There is a procedure to report if your W-2 is incorrect.  Do you know what the correct imputed income figures would be?  Remember that it is not just the employer's cost, but also your cost.


In other words, suppose your employers cost is $200 per month and your cost is $100 per month.  Your $100 share is pre-tax if your DP is also your tax dependent, but your share is supposed to be after-tax if your DP is not your dependent.  That would have to be adjusted as well. 


I also have the same question as you about who is responsible if you don't actually claim your partner as a dependent.  I think the compliance burden is on the employer, because—although there is a general procedure to report an incorrect W-2, there is no specific procedure I know of to report the imputed income in the case where your partner changes status during the year.  


I'm also very puzzled about how you would pay less tax by not claiming your partner as a dependent, since you lose the $500 dependent tax credit and you pay income tax on the cost of the health insurance.  What could you gain that is more than that?  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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