Domestic Partner Health Coverage and Your Taxes
Health coverage for a domestic partner, and any children of a domestic partner, is typically a taxable benefit.
Federal Tax Treatment of Domestic Partner Health Benefits
The federal government does not recognize domestic partnership for tax purposes. Employer contributions to domestic partner health premiums, including domestic partner children, are counted as taxable imputed income by the Internal Revenue Service (IRS). By comparison, no taxable imputed income results from employer contributions to a legal spouse’s health premiums. In addition, employee or retiree premium contributions for domestic partner health benefits are paid post-tax. Employee or retiree premium contributions for a legal spouse are paid pre-tax.
Federal Tax Exemption for Dependents Who Meet Certain Requirements
The Internal Revenue Service offers a tax break for health-related expenses incurred by a “qualifying relative.” Under IRS code section 152 (as modified by Code 105 (b)), a domestic partner and children of a domestic partner, qualify for favorable tax treatment if:
- Partner or child receives more than half of his or her financial support from the employee or retiree.
- Partner or child lived with the employee or retiree as a member of his or her household for the entire calendar year (January 1-December 31), with the exception of temporary absences due to vacation, education or military service.
- Partner or child is a citizen of the United States, or a resident of the United States, Canada or Mexico.
If an enrolled dependent meets all these requirements the employee or retiree can submit a declaration form to HSS and there will be no imputed income for the employer contribution to dependent health premiums. The HSS declaration form must be filed by required deadlines and is valid for one tax year. An individual declaration must be submitted every year for each qualifying dependent. Click here for the SFHSS Domestic Partner Declaration Form
Equitable California State Tax Treatment
The health benefits of a domestic partner, and children of a domestic partner, are entitled to equitable tax treatment under California state law. Equitable tax treatment under state law requires obtaining the California State Declaration of Domestic Partnership from the Secretary of the State of California. A domestic partnership is established in California when both persons file a Declaration of Domestic Partnership with the Secretary of State, and at the time of filing, all of the following requirements are met:
- Both persons have a common residence.
- Neither person is married to someone else or is a member of another domestic partnership with someone else that has not been terminated, dissolved, or adjudged a nullity.
- The two persons are not related by blood in a way that would prevent them from being married to each other in this State.
- Both persons are at least 18 years of age.
- Both persons are members of the same sex.
One or both of the persons is/are over the age of 62 and meet the eligibility criteria under Title II of the Social Security Act as defined in 42 U.S.C. Section 402(a) for old-age insurance benefits or Title XVI of the Social Security Act as defined in 42 U.S.C. Section 1381 for aged individuals.
- Both persons are capable of consenting to the domestic partnership.
An employee may be able to deduct the value of employer paid health insurance premiums for a domestic partner and his or her children when filing a California state income tax return. An employee with a domestic partner may take advantage of equitable California state tax treatment even if a domestic partner does not qualify for the federal tax exemption defined by the IRS.
For more information about California regulations see:
Consult With a Tax Advisor
This information may not include everything you need to know. SFHSS cannot provide tax advice. Please consult with a professional tax advisor before taking any action. You remain subject to all state and federal tax law and will be responsible for any consequences that result from the forms, documents or declarations submitted to SFHSS.