(Note: The above titled article as originally posted on the department's website on August 3, 2009, is revised (August 19, 2009) to clarify that a domestic partner does not have to meet the gross income test to qualify as a dependent for purposes of the exclusion for employer-provided health insurance.)
Under federal law, the value of employee health insurance paid for by an employer, including coverage for spouses and dependents, is excluded from the employee's taxable income. Therefore, employer-provided health insurance for a domestic partner of an employee is only excludable from an employee's taxable income if the domestic partner qualifies as a dependent of the employee.
In order for an individual who is not a relative (including domestic partners) of the employee to qualify as a dependent for income tax purposes, all of the following tests must be met:
- Gross income is less than the exemption amount ($3,650 for 2009).
- The individual has the same principal place of abode as the employee and is a member of the employee's household.
- The employee provides over one/half of the individual's support for the year.
- The individual is a citizen or national of the United States or is a resident of the United States or a country contiguous to the United States.
- The individual has not filed a joint return with his or her spouse.
However, for purposes of the exclusion for employer-provided health insurance, the individual does not have to meet the requirement that gross income is less than the exemption amount. Accordingly, an individual who is not a relative may qualify as a dependent for purposes of the exclusion if the individual meets all of the above requirements except that the individual's gross income is equal to or more than the exemption amount. (Notice 2004-79, Internal Revenue Service)
If the domestic partner qualifies as a dependent for purposes of the employer-provided health insurance exclusion, the value of employer-provided health insurance coverage for the domestic partner is excluded from the employee's income.
If the domestic partner does not qualify as a dependent, the value of the employer-provided health insurance coverage for the domestic partner is included as wages on the employee's Form W-2. The amount included as wages on the Form W-2 is subject to withholding and FICA taxes (generally 7.65% which includes social security and medicare tax).
The federal treatment of employer-provided health insurance coverage for domestic partners also applies for Wisconsin tax purposes, except FICA taxes do not apply for Wisconsin.
December 22, 2009