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Taxes and your benefits

Your benefits are an important part of your compensation and can affect your taxes. Learn more about tax savings on the premiums you pay for medical benefits (and when they don’t apply) and about when UC’s contribution to your benefits may be subject to taxes.

Tax savings on insurance premiums (TIP)

If you enroll in a medical plan that requires you to pay a premium, you’ll be automatically enrolled for pretax deduction of your premium costs from your paycheck. This reduces your taxable income and increases your take-home pay.

Premiums for your spouse, children and stepchildren who are on your UC medical plan are also paid pretax, and you may pay pretax for other eligible children if they are your tax dependents (grandchildren, step-grandchildren, disabled children age 26 and older and legal wards).

Rules for domestic partners are different for federal and California taxes.

For your federal taxes: The premiums for your domestic partner and/or your partner’s children or grandchildren must generally be paid on an after-tax basis unless these family members are your dependents as defined under the Internal Revenue Code.

For your California taxes: Medical premiums for your registered domestic partner and your partner’s children (including overage disabled children) may be paid pretax. Premiums for your registered domestic partner’s grandchildren also may be paid pretax if the grandchildren are your California tax dependents. 

If you haven’t registered your domestic partnership, you will pay medical premiums on an after-tax basis for both federal and state tax purposes for your partner and your partner’s children/grandchildren, unless they are your tax dependents.

Because TIP reduces your taxable earnings, it may also reduce the earnings on which your Social Security and unemployment benefits are based. If you have questions, check with a tax adviser about your situation. TIP deductions don’t affect the wages used to calculate your UC Retirement Plan (UCRP) benefits or the annual contribution limits for your 403(b) and 457(b) Plan.

Imputed income

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.