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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22830
Experience:  Taxes, Immigration, Labor Relations
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My last paycheck was almost entirely taxed due to Imputed Income

Resolved Question:

My last paycheck was almost entirely taxed due to Imputed Income for domestic Partner benefits. When I engaged my companies Payroll and Benefits departments they both directed me IRS saying they have no control of the Imputed amount. As I wait for the government shut down to end and IRS to reopen, Is there anything else I could do to get my paycheck back and/or prevent this dramatic change to my paycheck?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
since the Supreme Court issued its decision in United States v. Windsor. As a result of the Court’s decision, the Service has ruled that same-sex couples who are married under state law are married for federal tax purposes. See Revenue Ruling 2013-17 .

Lev :

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.
Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.
Taxpayers who wish to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.
Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012.

Customer:

My girlfriend is my domestic partner, If that changes anything. The Imputed Income was a never a consistent amount 13 - 100 but never the 3500-4000 it went to this last check

Customer:

Form 1040 is my best option?

Lev :

The issue with your last paycheck - that it is subject of 25% withholding - not regular withholding as for your wages.
On your tax return - all withholding will be credited toward your tax liability.
When you file your tax return - be sure to specify that Imputed Income should not be taxable according to the Supreme Court decision referenced above - so that amount must be excluded from taxable income - still you will claim the full credit for withholding.

Customer:

ok. I'm still surprised that I taxed so much. I was taxed 2100 and received 600 dollars this last paycheck

Customer:

is there anything I can do to prevent this from happening next paycheck. I can't afford this happening again

Lev :

The issue is that is NOT your tax liability - your tax liability is determined when you file your tax return.
What you have with each payment is withholding - to cover possible tax liability.
Because of additional income - you are pushed into higher withholding rates.
Yes - you may prevent that withholding if you provide the information above to your employer.
Please be aware that the Supreme Court decision was issued not long ago - and it might take some time for them to update their system.

Customer:

So I'll file the 1040 for the imputed with holdings for this year?

Customer:

and inform my benefits department of the Revenue Ruling 58-66, 1958-1 C.B. 60

Lev :

Yes - all withholding will be credited toward your actual tax liability when you file your tax return - so if withholding will be more than your tax liability - you will get a refund.
That is old Revenue Ruling.
You need to inform them about recent Revenue Ruling - you may print it from this location - http://www.irs.gov/pub/irs-drop/rr-13-17.pdf
That Revenue Ruling is based on the Supreme Court decision and actually eliminates the Imputed income related to health benefits.

Lev :

Your employer might be already aware of that decision - but it might take some time to eliminate withholding. Treasury and the IRS intend to issue streamlined procedures for employers who wish to file refund claims for payroll taxes paid on previously-taxed health insurance and fringe benefits provided to same-sex spouses.

Lev :

In additional - please be aware that on Sept. 23, 2013 IRS issued Notice 2013-61 providing guidance for employers and employees to claim refunds or adjust overpayments of FICA taxes and employment taxes with respect to certain benefits and remunerations provided to same-sex spouses.
You may find the text here - http://www.irs.gov/pub/irs-drop/n-13-61.pdf
You may provide this document to your payroll person - but most likely they already have it.
What you may ask - when they are planning to implement these new regulations?
When they do - that will eliminate that large withholding.
Also - the IRS provides steps for them to refund withholding - and these amount must be refunded to you - so you may verify when they plan to do so.

Lev :

If for any reason - they would not refund - you will claim a refund on your tax return.

Lev :

Let me know if you need any help.

Customer:

I am on the phone with my benefits center and they are telling "since you are not in a same sex Domestic partnership that doesn't apply to you

Customer:

Good tiumes

Customer:
4.

Registered Domestic Partnerships,

Civil Unions, or Other Similar Formal

Relationships Not Denominated as Marriage

For Federal tax purposes, the term

“marriage” does not include registered

domestic partnerships, civil

unions, or other similar fo

rmal relationships recognized

under state law that are not

denominated as a marriage under t

hat state’s law, and the

terms “spouse,” “husband and wife,”

“husband,” and “wife” do not include

individuals

who have entered into such a formal relation

ship. This conclusion applies regardless of

whether individuals who have en

tered into such relationships are of the opposite sex or

the same sex.

HOLDINGS
Lev :

In this case - you might consider to register...
Otherwise - the cost of health benefits provided to your domestic Partner would be treated as your taxable income...
Still all withholding will be credited against your tax liability.

Customer:

do you mean register the domestic Partnership?

Customer:

Which i have

Lev :

The IRS based their tax treatment on your state law. If you are considered married under your state law - you would be entitled to all tax benefits.

Lev :

These tax benefits are NOT specifically for the same-sex couple.

Lev :

"This conclusion applies regardless of whether individuals who have entered into such relationships are of the opposite sex or the same sex."

Customer:

registered domestic partner in washington state.

Customer:

Just double checking as my benefits department is pushing back.



Lev says:

11:27 AM


Yes - all withholding will be credited toward your actual tax liability when you file your tax return - so if withholding will be more than your tax liability - you will get a refund.

Customer:

This still applies to a washington state registered Domestic Partnership

Lev :

In Washington - registered domestic partners are NOT considered as married according to your state law - and you are not eligible to treat your partner as a spouse.
For specific details - you need to consult with an attorney in your state.

Lev :

See - http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Registered-Domestic-Partners-and-Individuals-in-Civil-Unions
Q1. Can registered domestic partners file federal tax returns using a married filing jointly or married filing separately status?


A1. No. Registered domestic partners may not file a federal return using a married filing separately or jointly filing status. Registered domestic partners are not married under state law. Therefore, these taxpayers are not married for federal tax purposes.

Customer:

3. Whether, for Federal tax purposes
, the terms “spouse,” “husband and wife,”
“husband,” and “wife” include indi
viduals (whether of the opposit
e sex or same sex) who
have entered into a registered do
mestic partnership, civil union,
or other similar formal 2
laws of that state, and whether, for those
same purposes, the term “marriage” includes
such relationships.

Customer:

ok

Lev :

That is correct - so the conclusion is based on your state laws - and as we see - in Washington - registered domestic partners are NOT considered as married according to your state law.
Changes in the law were introduced - but are not approved yet.

Customer:

Am I out of luck or is this still an option

Yes - all withholding will be credited toward your actual tax liability when you file your tax return - so if withholding will be more than your tax liability - you will get a refund.

Lev :

Yes - withholding will be credited.
Still the question - if your Imputed Income for domestic Partner benefits may be deducted - or that would be considered your taxable income.

Customer:

I assume it would be deducted.

Customer:

I have to head out unfortunately

Customer:

I just trying to get a better understanding.

Customer:

under Rev. Rul. 2013-17 my registered domestic Partner I can get a refund on the imputed income with holdings

Customer:

and the with holdings should not be in the next pay check

Customer:

the with holdings that were caused by the imputed income that is

Lev :

The law was introduced in Washington state to treat RDP as married - if approved - you would be able to deduct all insurance costs paid for your domestic Partner - but will be required to file a joint tax return.
Under Rev. Rul. 2013-17 the treatment of your registered domestic Partner is based on the local law which is currently states that RDPs are NOT married under the state law. As long as that would not be changed - you will have taxable Imputed income - and your withholding will stay same.
Regardless - withholding will be credited toward your tax liability on the tax return.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22830
Experience: Taxes, Immigration, Labor Relations
Lev and 6 other Tax Specialists are ready to help you

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