Who Is A Domestic Partner?
Essex Properties Trust offers benefit coverage for qualified domestic partners of the same-sex and opposite-sex, as well as children of qualified domestic partners who are registered in the states listed below:
California:
A domestic partnership is established when persons meeting the criteria specified by California Family Code section 297 file either a Declaration of Domestic Partnership (Form NP/SF DP-1) or a Confidential Declaration of Domestic Partnership (Form NP/SF DP-1A) with the California Secretary of State. A copy of the declaration and a Certificate of Registration of Domestic Partnership will be returned to the partners after the declaration is filed.
Washington:
The State of Washington's Domestic Partnership Program is administered by the Secretary of State (Corporations Division). Persons must complete the Domestic Partnership Registration Form. The Certificate of Registration is typically sent to the applicants within three business days of receiving the application.
What Are The Tax Implications of Domestic Partner Coverage?
The IRS categorizes taxpayers in two ways: married or single. Unlike health benefits paid to associates, their spouses and legal dependents, benefits for same-sex domestic partners are not exempt from federal taxes. Unless your partner qualifies as a tax dependent under state and federal law, the money paid by Essex for health care benefits for a domestic partner and/or the dependents of a domestic partner is income that is taxable.
The IRS requires that any portion of health insurance premium you pay for your domestic partner’s health coverage and for the coverage of your domestic partner’s dependent children must be taken from your check on an after-tax basis. The IRS also requires that the amount your employer (Essex) pays to cover your domestic partner or your domestic partner’s dependent children be added (imputed) to your taxable wages. This means your taxable pay will be increased by the estimated cost of the domestic partner’s coverage (minus the amount you pay in premiums). As a result, your taxable income will be higher than the actual (cash) wages you receive in your paycheck. The amount of imputed income can be substantial and will vary by the plan you select and the number of dependents you cover.
Who Is Responsible For Paying The Tax?
Associates are responsible for paying the tax on domestic partner benefits. To the extent the law requires the employer to withhold tax on the income paid to its employees, the tax on domestic partner benefits must also be withheld.
How Is The Tax Calculated?
While there is no IRS code specifically addressing this issue, private letter rulings issued by the IRS require that an employer withhold tax on the fair market value of the health benefit paid in excess of the amount paid by an employee for that benefit. Also, the associate portion of the premium that applies to the domestic partner’s benefits must be deducted post-tax.
For example:
Suppose an associate wishes to insure him/herself and his/her domestic partner only, with no other dependents on the HMO medical plan.
To the extent that the fair market value of domestic partner benefits is considered taxable as income, it will also be included in Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) tax calculations. In some instances there may also be state withholdings. For more information, contact your tax advisor. Essex and its subsidiaries cannot provide tax advice.