Domestic Partner coverage/ computing taxable and nontaxable.amts.

Caroliso · November 2002

Our benefits lawyer has just informed us that domestic partner coverage is not tax exempt and so "The Service" (I love the way he says that) requires employers to figure out the compenent of the premium that is taxable and seperate it out so it is taxed (the rest is not taxed under our cafeteria plan).

He's provided us with some examples but before i ask him to explain further I wonder if there isn't a resource on the internet (other than the IRS web site) that explains how to do this in English. Can anyone suggest something, or can someone explain what you do?

Thanks.

NaeNae55 · November 2002

Figure out what the premium would be if there was no domestic partner (would it be single coverage for example?) That part is non-taxable. The difference between what the employee actually pays for insurance and what they would have paid without a domestic partner is what is taxable. How complicated this all is depends upon what kinds of coverages you offer and whether or not children are involved. If it is only the employee and their partner, things are much simpler.

Example:

Employees pay $100 for single coverage and $150 for employee plus one. Married employees have $150 deducted from their income before taxes are computed. Those with domestic partners have $100 deducted from their income before taxes are computed, and $50 after taxes are computed.

Hope this helps. If not email me and we will schedule a phone call where we can discuss specifics.

Caroliso · November 2002

Thanks for your response NaeNae. That was helpful confirmation of what I was told. One difference: I understood that the focus was on the premium cost, not the employee contribution. That's not your understanding?

NaeNae55 · November 2002

I know the cost to the employee is affected, but I can't answer your question about the total cost. I would think not because the employer portion is considered a benefit too small to tax. But honesty, I cannot speak with any authority on it. I have never run across it because we have never had health coverage that covered domestic partners unless they qualified as "common law marriages." I would go back to your benefits lawyer and ask specifically about the employer portion. If it is taxable, what a mess! You will have to add the amount on as income and then deduct it back. I haven't heard of anyone having to do this for domestic partners, so maybe you are in luck and it is considered by the IRS the same as the rest of the health insurance benefit.

Domestic Partner coverage/ computing taxable and nontaxable.amts.

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