Health insurance for domestic partner and child(ren) of DP

[samsoc]

Multistate

With the recent DOMA ruling, I realized some things...

What is the employer procedure to correct an issue where they did not deduct employee's share of health insurance for a DP on a post-tax basis, nor add the employer share of cost as a fringe tax benefit? This is for about 5 employees in 2013 and maybe as much as 25 in the last 2 years when we allowed DPs to be covered in the plans.

Any advice would be greatly appreciated. Thank you.

 

[cbg]

The recent Supreme Court decision refers to same sex marriage, and does not refer to DP situations, be they same sex or opposite sex.

It has always been legal to deduct an employee's share of the premium on a pre-tax basis, so I'm not sure what you are referring to when you say the employer did NOT deduct the employee's share post tax.

 

[samsoc]

While the ruling is referring to same-sex marriages, it made me do more research on tax implications of covering DPs. According to my research, cost of covering DPs should be taxed somehow. I saw previous posts related to coverage for DPs and many do say there is some tax liability involved in that, by the employee and employer.

Currently my employer is deducting all of the insurance premium that covers DPs and children of DPs, on a pre-tax basis. Nothing is considered as imputed income either.

Please also note: My employer covers same and opposite domestic partners, by completing an affidavit.

 

[cbg]

(Please note that same sex marriage has been legal in my state since 2007.)

My employer deducts the employee portion, and the portion for any qualified children, pre-tax, and the portion for the domestic partner (or same sex spouse - we are currently looking for guidance from the feds on how to proceed with same sex spouses going forward) post tax. Any non-qualified children are also deducted post tax. Income is imputed on the post-tax portions.

We have recently realized that we should be doing similarly for any ex-spouses we happen to be covering and made that adjustment a year or so ago. While we will not allow an employee to add an ex-spouse to the plan, if the spouse is already covered at the time of the divorce we will allow them to continue coverage. A state law makes it difficult (not impossible, but difficult) to drop the now-ex spouse unless the employee wants to drop them. Of course, once dropped, they can never be added back on.

 

[samsoc]

Okay, thanks. So, considering that we've missed to deduct post-tax for coverage of DPs and children of DPs who are not qualified dependents for the past 3 1/2 years, do we have to issue W-2Cs, file amendments (employee and employer), or can we just correct it on a going forward basis? I think I know the answer to this, but I thought I'd put it out there anyway. I would imagine that this is not going to be pleasant for the employer or employee. Some of the employees that covered DPs are long gone, either resigned or laid off.

 

[cbg]

When we added ex-spouses to the mix, we just did it on a go-forward basis.

FYI, we are a major university (you've heard of us) with a very well known law school, and not one but two major law firms consult with us on compliance issues, including the law firm that argued the DOMA case in front of the Supreme Court (the winning side). Consult with your own counsel but if we got away with doing it on a go forward basis, you probably can too.

 

[samsoc]

Thank you, cbg. That was very helpful. I hope we can just correct this going forward and that no one loses their job over this.

 

[samsoc]

employee reaction

cbg, sorry, one more thing: how did employees react when you had to make the correction?

 

[cbg]

We did it during our Open Enrollment, when things were happening anyway. We didn't get a whole lot of argument. We leaned heavily on phrases like; "in order to be in compliance with changing Federal regulations" and "IRS regulations require that we...".