I added my domestic partner to my health insurance earlier this year. I understand that the Fair Market Value of my employer's contribution to the health plan is a taxable benefit to me. I also understand that the bi-weekly contribution I have to make to the insurance plan is a post-tax deduction to me. However, my employer is also deducting the FMV from my net pay. For example:
Gross Pay: $1000
Non-Taxed Deductions: $100
Value of Employer Paid Insurance on DP: $175.00
New Taxable Income: $1075
Taxes: $232
After Tax DP Insurance Premium: $75.00
After Tax Taxable Benefits - $175.00
Net Pay: $593.00
I can't seem to get a straight answer from my HR or payroll department. But something seems off to me and I can't seem to quite understand what's happening.
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Cash wages $1000
Pre-tax deductions -$100
Tax withholding -$232
After-tax deduction -$75
Total cash to you = $593
The additional $175 of imputed income is not actually money that you receive. It is reported to the IRS as taxable income because it is a benefit that is not eligible for a tax deduction. But it doesn't change your cash wages.
Another way to look at it is:
Value of your compensation (cash wages plus benefits) $1175
Pre-tax deduction for partner insurance (company share) -$175
Other pre-tax deductions -$100
Withholding -$232
After-tax deduction for partner insurance (your share) -$75
Net cash in your pocket = $593
Note that the imputed value of insurance will go away if you get married.
The same calculation would apply if you received certain other taxable benefits from the employer, such as personal use of a company car. If the company allows you to use a business car for personal use, the value of the personal use is added to your taxable income on your W-2 even though it is not part of your take home pocket money wages.
Hello Mr Opus, I have exactly the same situation here and I will like to post my paystub here and see if you could help me to make sense of those numbers because honestly they don't add up for me. How is this that the Dependent Imputed Income is on Deductions and on Gross Earnings, Then is not clear to me how to separate from those deductions the Pre-Tax deductions and the Post-Tax deductions, It's not way that I can understand that paycheck. Please could you help me to make sense out of it? Thank you very much.
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