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Lev
Lev, Tax Advisor
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US Domestic Partner Tax Question How does declaring an opposite

Customer Question

US Domestic Partner Tax Question

How does declaring an opposite sex domestic partner as a tax dependent for medical, dental, etc benefits work? There is a Declaration of Tax Dependent form through our benefits that could save imputed income and take out employee contributions for a domestic partner pre-tax instead of post-tax (saving a lot of money and lowering taxable income.) Trying to figure out if I can take advantage of these benefits. Reading IRS Pub 501 and Section 152 it seems like you can only claim them as a tax dependent if you can claim them as an exemption on your federal taxes. Yet our form says your domestic partner can qualify as your tax dependent for coverage even if you do not claim an exemption for them on 1040. The whole problem with claiming an exemption for them is they make more than $3700, so they cannot be a "qualifying relative" for a federal tax dependent exemption. All other conditions are met - they are not my qualifying child or qualifying child of another taxpayer, they lived in my household all year, our relationship does not violate local law, and I provide more than half of their support. They are also a USA citizen.

The further confusion comes in with IRS Pub 502 where they ARE a qualifying relative for the purposes of my Medical Expense Deduction. According to Pub 502 I can put medical expenses I incur for the domestic partner towards this Medical Expense Deduction.

Specifically on our Declaration of Tax Dependent form it says:
(this is what I would choose)
"My domestic partner qualifies as my dependent for federal income tax and, if applicable, state income tax purposes.
In general, your domestic partner qualifies as your tax dependent if you can claim an exemption for them on your federal tax return or if all three items below are true for the entire calendar year:
1. You and your domestic partner share the same principal residence and your domestic partner is a member of your household, and the relationship does not violate local law.
2. You provide more than one-half of your domestic partner's support.
3. Your domestic partner is a U.S. citizen, national, or resident of Canada or Mexico."

The second choice is:
"My domestic partner qualifies as my dependent only for state income tax purposes.
There are several states which may provide a specific state tax exclusion if you have registered as domestic partners, or entered into a civil union or same-sex marriage, even if your domestic partner does not qualify as a dependent for federal income tax purposes. These states may include California, Connecticut, Delaware, District of Columbia, Illinois, Iowa, Maine, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont. Also, keep in mind there is no individual state income tax in Alaska, Florida, Nevada, New Hampshire (except dividend and interest income), South Dakota, Tennessee (except dividend and interest income), Texas, Washington, and Wyoming. The preceding list of states are provided for informational purposes only and should not be relied upon."


This form above I have searched the internet and it seems to be worded pretty consistently from organization to organization.

If I go by what Pub 501 says, they are not my tax dependent so I cannot claim an exemption for them on my federal taxes. Yet I meet all three of the conditions in the first choice above and the first statement says if you can claim a federal tax exemption for them OR these three conditions. The real problem is reading the publication and tax codes it is not clear how they are arriving at the OR for these three conditions. Can I do this?

Also, in relations to a healthcare FSA - if they are my tax dependent then I can pay for them out of my FSA, but is that only if they meet the qualifications of being able to claim a federal dependent exemption for them according to Pub 501 and Section 152? What if I am able to declare them as a tax dependent through this form above - then can I pay for all of our healthcare expenses from my healthcare FSA or can I not do that because I cannot claim them as an exemption on my federal taxes? I have read conflicting things regarding this as well.

In case I should look into and research the second option which I have not done yet, my residence state is Illinois.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
There are certain requirements to consider the person your dependent for tax purposes. While requirements are similar for medical expenses deduction - there are some differences - in particular -you can include medical expenses you paid for an individual that would have been your dependent except that:

--He or she received gross income of $3,700 or more in 2011,

--He or she filed a joint return for 2011, or

--You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2011 return.
Still the Domestic Partner has to live with you all year as a member of your household and your relationship should not violate local law, and
You should provide to that person over half of the support in the tax year.
For medical deduction purposes - you do not need to claim that person as a dependent.
Please see for reference IRS publication 502 - www.irs.gov/pub/irs-pdf/p502.pdf

LEV :

Let me know if you need any clarification or help with determination.

Customer :

I'm not sure I understand your response. I was less concerned about the medical expense deduction and more trying to figure out it I could claim them as a Tax Dependent on this form for my benefits and save money with pre-tax benefit deductions instead of post-tax like I do now. I was citing the medical expense deduction as something that I could do with my domestic partner - I am still unsure about the tax dependent part for this form. The part throwing me off is the or condition of the first choice - I cannot claim them as an exemption on my federal taxes because of the gross income only. Yet I meet all three of the other conditions - where are they getting that from? If I go by the OR in that statement, I should be able to do this. Yet I have not done it yet because it does not seem right to me reading Pub 501 and Section 152. Also, if I am able to do it can I then use my healthcare FSA to pay for both of our medical expenses? The actual medical deduction I care less about because I will not more than likely spend more than the 7.5% (or more if the amount changed for next year, I have not checked but I think it has) in medical expenses that are required before I can start claiming that deduction.

LEV :

As you already notes - rules to claim a person as a depended are different for different reasons. Rules are different based on purpose.
I was less concerned about the medical expense deduction and more trying to figure out it I could claim them as a Tax Dependent on this form for my benefits...
Unfortunately - the Domestic Partner may not be claimed as a dependent for health insurance purposes. Only the spouse and children under the certain age may be claimed as dependents for such purposes.
The part throwing me off is the or condition of the first choice - I cannot claim them as an exemption on my federal taxes because of the gross income only.
When you are reading IRS publication 501 - we are talking about claiming dependents for tax deduction purposes - these are different rules.
Yet I meet all three of the other conditions - where are they getting that from? If I go by the OR in that statement, I should be able to do this.
Now we are talking about dependent for medical deduction purposes. Rules that determine dependent for medical deduction and FSA purposes are same. Thus - you may cover medical expenses (including health insurance premiums) for the Domestic Partner via FSA.
However - as you mentioned - that you are less concerned about the medical expense deduction...Still that is the only way to to pay health insurance premiums with pre-tax money.

LEV :

Also, if I am able to do it can I then use my healthcare FSA to pay for both of our medical expenses?
Yes - you may do so - and that was my point concerning medical expenses. Please be aware that health insurance premiums are included into medical expenses. So you may use FSA to pay health insurance premiums and other medical expenses with pre-tax money - but the total amount is limited by $2500 starting 2013.

Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.

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