Imputed Income and Health Insurance Benefits
This information does not constitute tax advice. Consult your tax advisor for specific guidance regarding federal and state income tax.*
Imputed Income
Beginning January 1, 2010, State of Wisconsin provisions allow state employees, which include UW employees/appointees, to add a domestic partner, a partner's child, and/or an adult child to their health insurance. Consult for tax dependent guidelines and tests.
If you add a dependent to your health insurance coverage who does not qualify as a tax dependent under the Internal Revenue Code Section 152, the Fair Market Value (FMV) of the UW contribution toward that coverage is considered a taxable fringe benefit, subject to tax withholding. This calculated fringe benefit is known as "imputed income.” This fringe benefit will increase your taxable income. Therefore, your Federal, State, Social Security and Medicare taxes will increase. As a result, your net pay will decrease.
The following reference tables have been prepared for estimating monthly imputed income based on the Fair Market Value for each health plan and the number of non-tax dependents covered.
2010 Monthly Imputed Income Tables
Table 1 :
Table 2 :
Imputed Income Tables: The Fair Market Value (FMV) of insurance coverage provided for an individual who does not qualify as a dependent under Internal Revenue Code Section 152, (e.g., domestic partners and certain dependents to age 27) is taxable for employees. Therefore, the FMV of the health insurance benefit must be added to an employee’s earnings as imputed income.
The monthly imputed income amounts vary by health plan and are provided for either 1 non-tax dependent, or 2 or more non-tax dependents. These dollar amounts will be adjusted annually. Employees who are unsure if a person can be claimed as a dependent should consult or a tax advisor.
Imputed Income Calculator
The imputed income calculator will assist you with estimating the tax implications of extending health insurance coverage to a domestic partner or eligible dependents. Use the Earnings Statement Legend to locate the values that you need for the imputed income calculation.
Imputed Income and WRS
Imputed income will have no impact on reported earnings for your Wisconsin Retirement System account, your State Group Life Insurance, or your Income Continuation Insurance coverages.
Imputed Income and Domestic Partnership
Questions & Answers |
The questions and answers below are taken directly from the ETF document, Domestic Partner Benefits, ET-2370 (09/2009). Specific question numbers are referenced.
Q-32: How does the addition of my domestic partner and his/her eligible dependents to my group insurance affect my income taxes?
A: If your domestic partner or his/her eligible dependents are not considered “tax dependents” under federal law, your employer must include in your gross income the fair market value of the health insurance benefits provided to the partner and partner’s eligible dependents. This may affect your taxable income and increase your tax liability. Under federal law, a domestic partner cannot qualify as a spouse for purposes of excluding employer-provided health benefits from the employee’s taxable income. Unless the employee’s domestic partner qualifies as a dependent under the Internal Revenue Code (IRC) § 152, the employee or retiree is taxed on the fair market value of the cost of coverage provided to his or her domestic partner. This is known as “imputed income.”
Q-34: My insurance premium is deducted on a pre-tax basis. How is that affected?
A: Your health insurance premium will continue to be deducted on a pre-tax basis. However, the fair market value of the portion of coverage attributable to a domestic partner or other dependent who does not qualify as a dependent under IRC Section 152 will be calculated and added to your gross pay as taxable income.
Q-35: How can I determine if my domestic partner qualifies under the Internal Revenue Code as my tax dependent?
A: Consult the guidelines in for “qualifying relative.” In general, the IRS requires that a qualifying relative meet four tests:
- The dependent does not meet the qualifying child tests
- The dependent must live with you all year as a member of your household
- The dependent’s gross income must be less than $3,500 for the year
- You must provide more than half of the dependent’s support for the year.
The list above should not be used as the sole determination of your dependent’s tax status. These tests are described in detail in , which is available at the Internet Web site of the .
Q-36: What actions can I take to prevent imputed income if I can prove that my domestic partner is my tax dependent under federal law?
A: If you are an active employee and your domestic partner is indeed your tax dependent, you should contact your employer’s payroll and benefits specialist to determine what documentation is required to prevent imputed income.
ETF Getting Started with Domestic Partner Benefits
ETF Benefit Eligibility for Adult Children up to Age 27
*Please Note: This information does not constitute tax advice. Consult your tax advisor for specific guidance regarding federal and state income tax. The information presented in this material has been prepared to assist you in understanding the tax consequences associated with adding a domestic partner, your partner's child, or an adult child to your health insurance. This material attempts to summarize tax provisions and answer questions. No guarantee or contract is created by this material. |
