Under current Internal Revenue Service rules, the value of the contribution UC makes toward the cost of medical coverage provided to certain family members who are not your tax dependents may be considered imputed income that will be subject to federal income taxes, FICA (Social Security and Medicare), and any other required payroll taxes. In some cases, you may also have imputed income for California state income tax purposes.
Federal Income Tax (Including FICA)
For federal income tax purposes, you will have imputed income for UC’s portion of the cost of coverage provided to your domestic partner and/or your partner’s children unless these family members are your tax dependents. You will also have imputed income for coverage provided to any grandchildren of your same- or opposite-sex partner if they are not your tax dependents.
Changes under Federal Health Reform
Under a 2010 change in federal tax law, you will not have federal imputed income for coverage provided to your natural or adopted children and/or step-children who are the children of your spouse, even if they are not your tax dependents.
California State Income Tax
You will not have California imputed income for coverage provided to your domestic partner if the domestic partnership has been registered with the state of California. If the domestic partnership has not been registered with the state of California, California imputed income will apply; however, if you have entered into a valid same-sex union, other than a marriage, in another jurisdiction, and California recognizes that union as substantially equivalent to a California registered domestic partnership, you may be able to exclude the imputed income from state taxation when you file your state tax return.
California imputed income will apply for covered children or grandchildren of your same- or opposite-sex domestic partner if the children are not your tax dependents.
Forms and Procedure
If you have submitted UC’s benefits enrollment form (UPAY 850 or UBEN 100) indicating that you and your domestic partner are registered in California, you will not have California imputed income for your partner’s coverage. Any out-of-pocket premium cost for medical coverage for your partner will be deducted from your pay on a pretax basis for California income tax purposes. For federal tax purposes, you will have imputed income and the out-of-pocket premium cost must be paid on an after-tax basis.