- Employee benefits
- Understanding your benefits
- Details about your health and home benefits
-
Taxes and your benefits
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.
- Your TIP amount will adjust or stop automatically if you change or cancel your medical plan during your first 31 days of employment or during Open Enrollment. Also, certain changes in your coverage, employment or family status trigger a new 31-day period during which you’re allowed to make certain changes to your medical plan. (This period is referred to as a period of initial eligibility, or PIE. See the Enrollment section of A Complete Guide to UC Health and Welfare BenefitsPDF for details on permitted changes.) Once you’ve made the changes, your TIP amount will be adjusted accordingly. If any excess tax has been withheld, you can get it back when you file your tax returns.
- If you enroll in medical coverage midyear without a PIE, you will be subject to a 90-day waiting period and your premium must be paid on a post-tax basis for the remainder of the year. See page 19 of A Complete Guide to UC Health and Welfare BenefitsPDF for details.
- If you would prefer not to pay for your coverage on a pretax basis, you may cancel during your first 31 days of eligibility, during Open Enrollment in November, or within the first 31 days after you have an eligible change in employment or family status. The cancellation takes effect as soon as you complete the transaction, subject to payroll deadlines. Your take-home pay won’t be adjusted retroactively.
- If you go on a leave without pay or lose eligibility for benefits due to a reduction in your appointment rate, your participation in TIP automatically ends.
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.
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 domestic partner if they are not your tax dependents.
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.
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 domestic partner if they are not your tax dependents.
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.
If you enroll for benefits through UCPath, you indicated during the enrollment process whether your enrolled family members (including your domestic partner and/or partner’s children or grandchildren) are your tax dependents, and whether your partnership is registered with the State of California.
If you enroll for benefits as a retiree through UC Retirement At Your Service, you need to submit UC’s benefits enrollment form (UBEN 100)PDF to request insurance and to indicate whether you and your domestic partner are registered in California. An additional form and copy of your Medicare form are required for Medicare enrollees.
If you have notified UC 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.
You can submit a Declaration of Tax Dependency (UPAY 886) PDF at any time during the year.