Domestic Partner Insurance Offered but Taxed at Ridiculous Rate

[felisha404]

My question involves insurance law for the state of: Mass

My DP took out health insurance for us as a family. We have lived together for 7 yrs, but are NOT same sex.

I have 2 kids covered in family plan.

Cost of policy was as follows: 50 for him as employee, 50 for me, and 60 more for kids to get family policy. This amount is deducted from his paycheck every 2 weeks x 24 pay periods.

Total cost was 50 every 2 wks for him, I paid the 110 every 2 wks for my family.

We noticed the dedcution, but the tax from mainly federal gov went up by 140 per pay period. In essence this crazy plan is costing us double what we thought. It is 110 per pay period for me and kids, and another 160 is being deducted by taxes.

When he asked his benefits coordinator, they explained that his portion is tax free, but the family part is not since we are not married.

Does this make any sense to anyone? I can't understand it, because I don't see how my health insurance, married or not could be taxed at over 100 percent rate. Do we get anything back?

He is still in process of investigating why and how it came to this. His benefits coordinator is very weak and unknowledgeable.

I am just wondering if this is legal, and possible. Would we get a lot back in tax?

Had we known, I prob would have not taken out this health insurance. I work part time and have it offered by my company, but it is just as expensive as his when you figure the tax implication.

Would appreciate any advice or insight.

Thank you

[cbg]

That makes absolute sense to me. I can't speak to the specific numbers because I don't have access to his plans, his salary information, his tax status or his premium information, but it is absolutely correct that the employee's portion is taken out of the paycheck pre-tax, and if the kids were his, their portion would be taken out pre-tax, but the portion that is taken out on you must be taken out post tax, and since the kids are yours and not his, their portion is also post tax. You are subject to imputed income on the cost of the insurance, minus the portion of the premium that covers him. This is Federal law, and it doesn't make any difference whether you are same sex domestic partners or opposite sex domestic partners; it is handled the same way.

[PattyPA]

Here be the numbers:

Since you are not of the same sex, this is not a "domestic partner" situation, at least as far as federal tax is concerned; however, it would be the same for federal tax even if you WERE of the same sex and considered "domestic partners" or were same sex partners married under MA law. The federal government does not recognize common-law marriage for tax purposes.

If the individuals being covered are not dependents are defined by the IRS, then the entire amount for their coverage is taxable, including the employer portion.

So, let's say single coverage for him only is $50 per paycheck. His taxable wages for FIT. SS, and Med taxes are reduced by $50 and the cost the employer bears for the coverage is not considered.

Now, he includes you and your children. That's an additional $110 from his paycheck. Not only is the deduction from his pay not pre-tax, but he has imputed income, subject to all federal withholding, of the incremental amount it costs to cover all of you. So, if the company pays $500 per pay period (or the equivalent thereof) total for covering all of you, but would only pay $200 per pay period (or the equivalent thereof) if just covering him, the incremental cost to the company is $300. $110 of that $300 is deducted from his pay after-tax and $190 is added to his wages, taxed, then deducted back out from his net pay.

Sorry, but that's exactly what the IRS regulations require.

Now, if these were HIS children (regardless of whether you are their mother or not), he could choose "Single Plus Children" and everything deducted from his pay would be pre-tax and there would be no imputed income. But the fact is, is that the federal regulations do NOT recognize the children as his, and does not recognize you as a legitimate dependent, since you two are not married.

[felisha404]

so will either of us get a tax credit at the end of the year?

If this amount was for health insurance, is there any tax deduction or do we both lose it?

How about if he or I had the amount taken out as flexible spending acct money?

Since the benefit comes out of his paycheck, but legally I pay him for it, does this matter? Can I get credit for it or can he?

Had I known this would have such a crazy tax implication, I would NEVER have gotten this premium. It more than doubled the cost of the premium.

It's really a phony way for his company to pretend they cover DP's in benefits of health insurance. I went from paying 110 per pay period (every 2 wks) to 270.

It makes no logical sense to me, whether or not it is the law. Very upsetting!

[PattyPA]

1. See a qualified tax preparer.

2. INSTEAD of having insurance coverage?

3. No, it makes no difference that you are paying him.

But, again, this is NOT a domestic partner situation. Domestic partners are, by definition, of the same sex. If anything, this is a common-law marriage and nothing more.

[felisha404]

Then why does his company require that we show proof of domestic partnership with papers and bills dating back to one year to prove partnership in same household for that period of time?

If it was simply common law marriage, they would not require this.

Don't know what you mean by INSTEAD of having insurance coverage. I could have gotten the same health insurance thru my employer at about the same rate, given the tax liability. That made the premium more than double, so no money saved unless we can get a tax credit.

[aardvarc]

The company can require anything they want to ensure you meet THEIR criteria for being added to their plan. That has nothing to do with the IRS recognizing the same qualification.

[cbg]

Patty, I have to differ as far as "domestic partner" is concerned. For BENEFITS purposes, which may or may not be the same as tax purposes, domestic partners can be either same sex or opposite sex. Also, remember that this is Massachusetts; we have different definitions here because of the legality of same-sex marriage.

Health insurance premiums MAY NOT be submitted to an FSA for reimbursement - again, this is Federal law.

You will have to see your tax advisor with regards to tax credits. I have nothing in my materials that addresses that issue either way. However, he does have the option of adjusting his W-4 deductions to compensate for the imputed income.

[PattyPA]

Point taken, cbg. That's why I'm the payroll person and you're the benefits person.