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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I added my domestic partner to my company's health insurance

Customer Question

I added my domestic partner to my company's health insurance plan and was not informed about imputed income. We cannot afford to lose net pay and now want to drop her.
Submitted: 1 year ago.
Category: Tax
Expert:  Tax.appeal.168 replied 1 year ago.
Welcome. Thank you for choosing us to assist you. My name is ***** ***** my goal is to help make your life, a little... less taxing.
The expert that you requested is not available at this time. Can you please elaborate on what it is that you need assistance with. I see that you wrote that you want to drop her from the insurance. Is it dropping her that you need assistance with or something else. Please clarify.
Customer: replied 1 year ago.
I was hired by a company in February 2015- and had to enroll for my benefits by May 10, 2015 (when my 90 days passed from first hire). My company covers "domestic partner and dependents." We were on the phone with the Marketplace Rep for hours going over stuff- and never once heard about Imputed Income. Furthermore, there is nothing in the booklets that were given to us. It wasn't until May 21, 2015 I received an email from HR person (11 days after having to enroll for my benefits) that I needed to be aware that after verifying domestic partnership I would have imputed income on my paycheck and w2's and will be taxed,etc. From what I have read this can really hurt my net pay, etc. I want to know if we can drop my domestic partner (if we find out this is very costly- we are already having to pay 114.00 every two weeks for benefits much less to be taxed and add income that I do not receive)
from this due to what happened as this is not a "life qualifying event" and open enrollment doesn't begin again until November.
Customer: replied 1 year ago.
Oops.. the line about "life qualifying event" got mixed up- we just enrolled and would want to drop but now do not have a "life qualifying event..."
Expert:  Tax.appeal.168 replied 1 year ago.
Yes, added a non dependent to your health insurance is considered a fringe benefit, which is taxable, as you already have found out. Based on the following list, you will not be able to remove your partner until the next open enrollment. SEE BELOW:
The Internal Revenue Service (IRS) provides guidelines on when employees can and cannot make changes to their pre-tax benefit programs. The categories listed below reflect the “Qualifying Life Events” that are required by the IRS for a change to be allowed and most are addressed separately in other guides.
You change your legal marital status, which includes marriage, death of spouse, divorce, legal separation, or annulment.
Your dependents change due to birth, adoption, placement for adoption, or death of the dependent.
You, your spouse, or your dependents terminate or commence employment.
You, your spouse, or your dependents reduce or increase their hours of employment.
Your dependents cease or commence to satisfy the requirements for coverage due to attainment of age or student status.
You, your spouse, or your dependents change place of residence or work.
You, your spouse, or your dependents are entitled to coverage under Part A or Part B of Medicare, or Medicaid.
You, your spouse or your dependents commence or return from an unpaid leave of absence such as Family and Medical Leave or military leave.
You receive a court order to provide coverage for your child (ren).
There is a substantial change (at least $50 per month) in the premiums and/or benefits in the plan covering dependents. Example: Spouse covers dependent child (ren) and the cost of spouse’s coverage increases at least $50 per month, dependents can be added to your plan.
You stop the withholding of premiums from your pay.
If none of the events listed apply to an employee’s situation, the employee will need to wait for the next annual enrollment period in order to enroll or make changes to their benefits. There are some exceptions as listed below, or you may contact the Employee Benefits Office to discuss your situation with an analyst.
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You may be able to argue the fact that you were not told that adding your partner would be considered a fringe benefit, however, I don't know if that will make a difference. Nothing beats a failure but a try.
REFERENCE SOURCE:
www.unchealthcare.org/site/humanresources/benefits/guides/change_oae
Let me know if I can be of further assistance to you regarding this matter.
Expert:  Tax.appeal.168 replied 1 year ago.
You may let the employer know that having your partner on the health insurance plan creates a financial hardship for you and that you were not aware of the imputed income situation prior to adding her to the plan. Check to see if your employer has a Hardship Exception policy in place. Usually this exception is for adding someone to a plan, but it also may work in reverse as well.
Customer: replied 1 year ago.
My domestic partner is not part of the pre-tax IRS benefit which is why I was researching further. From what I read the open enrollment period for this is like it is specifically because of agreement IRS has made regarding pretax stuff....and again I'm only pretax...benefit she is not. This is why I thought when I was originally talking to a Tax Lawyer there may be something else to this since we weren't informed of any financial consequences such as imputed income, etc. I already knew about the "Qualifying Events"
Expert:  Tax.appeal.168 replied 1 year ago.
Hello again,
No, I am not a Tax Attorney. I will opt out and release the question back into the question queue. Have a good night.
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!
If your employer provides health insurance to beneficiaries other than your tax dependents - such as a non-dependent domestic partner, the employer MUST report the FMV of those health benefits to you as "imputed income" on the Form W-2.
HOWEVER - if your domestic partner is your dependent - there is NO "imputed income."
See here
http://www.rjfagencies.com/Blog/TaxationofDomesticPartnerCoverage.aspx
To be a federal tax dependent of an employee, a domestic partner must meet the requirements of a “qualifying relative” under Code §105(b). The partner must:
•Have the same principal place of abode as the employee and be a member of the employee's household.
•Receive over half of his or her support from the employee.
•Not be anyone's qualifying child.
•Be a (1) citizen of the U.S., or (2) a resident of the U.S. or a country contiguous to the U.S.
As we see - there is NO income limit requirement.
Thus - if you provide certification to your employee that your partner is your tax dependent under section 105 - your employer is allowed not to report imputed income.
Please verify if that works for your situation.
Customer: replied 1 year ago.
I was asleep last night when this came through. I am unsure of partner qualifying for dependent- as she has her own income and receives the Earned Income Credit each year and we don't want to lose this (she is on disability- and has LTD and Social security from teaching). I don't see how we can drop her out of open enrollment when we were not informed of any of this nor is it listed anywhere in literature. I read the IRS enrollment period is because of the PRE TAX benefit and we don't get pre-tax benefit in any of this- it's the opposite for her. My last pay I now had 533.00 show for gross pay for insurance.... I am unsure if this were for one month because my benefits started on May 9th or if this is for each pay period.... It would seem that this is one month as medical FMV was 471.36 on one pay for May alone. I had a decrease in net pay of over 231.00- so pay more taxes, plus the insurance premium each pay for her (45.00 bi weekly). She has insurance- Priority Health/Medicare combo. with maximum out of pocket of 5000.00.... Mine has a 3000.00 deductible for two of us on top of this. We were under the impression that maybe she would have dual insurance for Coordination of Benefits and God forbid something catastrophic happened with her health we would be covered. Now I am trying to figure out if all this is worth it.... as we always want to be covered.... but I don't know if we should be saving another way. I was out of a job for 5 months (laid off-company folded) so this job is very good- but we are playing catch up enough as it is.
Customer: replied 1 year ago.
Can we revoke Domestic Partnership form we signed- it was very generic- my partner even hand wrote next to one question that company asked about- as the way the company had this worded we didn't agree to it as in it stated we agreed that we are both responsible for all expenses and third party debt for one another and we are not- so we hand wrote this in. Also, the company's letterhead was not on form- it looked like something printed from Word Doc. So confused.
Expert:  Lev replied 1 year ago.
.
I am unsure of partner qualifying for dependent- as she has her own income and receives the Earned Income Credit each year and we don't want to lose this (she is on disability- and has LTD and Social security from teaching).
A.
Regarding being a dependent - please be aware that being a dependent for medical purposes and being claimed as a dependent on the tax return - these are different - and requirements are different.
She may be your dependent for medical deduction purposes - and not being claimed as a dependent on your tax return.
So it is possible to certify that she is your tax dependent under section 105 - and that woudl NOT affect her Earned Income Credit or disability qualification.
.
I don't see how we can drop her out of open enrollment when we were not informed of any of this nor is it listed anywhere in literature.
A.
Unfortunately - the ONLY way to change insurance is to terminate your employment.
You would not be able to change enrollment without having a Qualifying Life Event - and based on your information - there is no such event.
That imputed income requirement is based on current tax law - and just because you were not aware - doesn't change anything.
.
As the best option - I suggest to verify if your partner qualifies as your dependent under section 105 - and communicate with your employer not to treat the insurance cost as your imputed income.
If that doesn't work out - your only way to terminate that employment - and that will terminate insurance contract.
Or to wait for another enrollment period - most likely - it will be in November and change enrollment.
Unfortunately - there is no other way around the issue.
Sorry if you expected differently.
Customer: replied 1 year ago.
I further researched- we have until June 9, 2015 to change any of my benefits plan and drop my partner from medical (30 days from enrollment).
Expert:  Lev replied 1 year ago.
Appreciate your update.
That might be a solution - if you are still within 30 days initial enrollment period.
Within the enrollment period all changes are allowed.

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