Dear Tax Talk,
Can I deduct the imputed income that is added to my pay to cover my same-sex partner’s portion of medical insurance costs?
We are not in a same-sex marriage or civil union, but I cover him under the domestic partnership option of my employer’s medical/dental insurance. The value of his coverage is added to my pay as imputed income, on which I pay substantial taxes. Can I use this amount for the year in determining my medical expense deductions, as it would exceed the 7.5-percent AGI (adjusted gross income) test?
What one hand giveth the other taketh away, especially when the latter hand belongs to Uncle Sam. Employers hoping to attract and retain talented employees and put an end to discriminatory practices have extended health benefit coverage to include domestic partners. Uncle Sam effectively makes it more costly to all to provide health insurance.
Health insurance coverage is excluded from an employee’s wages when it covers the employee, the spouse and dependents. If the parties are unmarried either by choice or because of the lack of freedom to do so, the coverage of nondependents is imputed as income to the employee. The employer must also pay additional payroll taxes for offering this benefit.
While the employer can deduct the cost of the additional payroll taxes, the employee usually cannot claim the medical insurance as a deduction. In order to claim the medical insurance as a deduction, the insurance would have to cover a spouse or a dependent. If you partner works, then you most likely will not be able to claim him as a dependent. Hint: Have your partner reimburse you for the insurance and allow him to take the deduction.
While this is a hindrance, there are many benefits to not filing jointly. Generally, a two-income couple will be better off after taxes if they remain unmarried. In 2007, legislation was drafted to eliminate the disparity in taxation of health insurance plans. For more information, you con look up Tax Equity for Domestic Partner and Health Plan Beneficiaries Act.
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