The content herein is not intended to provide tax, legal, accounting, financial, or other professional advice. Please consult a qualified professional about your personal situation.
Spouses and Children
Generally, coverage is offered to an employee's legal spouse and dependent children.
Child Coverage Through Age 26
A key component of the Affordable Care Act (ACA) extends dependent coverage until the date that a child turns 26. This coverage is available:
- Regardless of whether the employee claims the child as a dependent for tax purposes
- Regardless of where the child lives
- Regardless of whether the child is in school
- Regardless of whether the child has another offer of coverage through an employer or spouse
For reference, visit the Employee Benefits Security Administration (EBSA): Young Adults and the Affordable Care Act FAQs
Domestic Partner
Your employer may offer coverage for your domestic partner, but there may be adverse tax consequences.
Domestic partner coverage is taxable to the employee under general tax rules.
Because the IRS does not treat Registered Domestic Partners the same as spouses for federal tax purposes (i.e. cannot file joint returns), the healthcare coverage you provide for your partner is considered a taxable fringe benefit.
Unless an exclusion applies, the employee receiving benefits for a partner may have to pay federal income tax on the value of the benefit, known as “imputed income.”
Due to this, there are three things you may notice on your pay stub and Form W-2:
- Pre-tax deduction—as an employee, your coverage is deducted pre-tax.
- Post-tax deduction—the coverage you provide for your partner is deducted post-tax.
- Imputed income—the fair market value for the coverage you provide your domestic partner which is included in your gross income. NOTE: if you cover your partner’s children, imputed income may apply to them as well if they are not your qualified tax dependents.
How do I know if an exclusion applies?
For health purposes, the IRS allows a domestic partner to be an employee’s “qualifying relative.” You will not need to pay income tax on the value of the coverage if your partner meets the criteria:
- Is not a qualifying child of any taxpayer
- Is a citizen, national, or legal resident of the U.S. or a resident of a contiguous country
- Is a member of the employee’s household for the full tax year
- Receives more than half of his or her support from the employee
This criteria is less stringent than the IRS definition of a qualifying relative for federal income taxes because the "Gross Income Test" isn't applied. For reference, see Internal Revenue Code §152, as modified by §105(b).
Employees are responsible for letting their employer know if a domestic partner is a qualifying relative for tax purposes.
References:
IRS FAQs for Registered Domestic Partners and Civil Unions (Q12)
IRS Information Letter 2016-0008
IRS Information Letter 2016-0012
Employers, Domestic Partnerships, and the IRS
Last updated 6/07/19
