Is my employer over-charging me for imputed income?

Forum|Forum|5 years ago
October 6, 2020
1 reply
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Hello,

I recently added my non-dependent partner as my domestic partner on my health insurace. My benefits representative said I'll have a deduction of $273.60 per pay period which is my imputed income. As I understand it, imputed income is the value of the benefits to my DP that I'm responsible for paying the taxes on. So if my imputed income was $273 per pay period, wouldn't I only owe the tax on that? I looked up how much my employer is contributing to my insurance premium for my DP and it's about $250. So how am I being deducted far more than the entire employer contribution? Am I missing something? It seems like something must be incorrect here. Any help much appreciated!

Opus 17

Employee

First, it is important to understand that everything of value that is provided to you by your employer in return for your services is considered taxable income to you, unless it falls under one of the protected categories of fringe benefits.

Health insurance benefits for yourself, your spouse, and your dependents are in the protected category of non-taxable benefits. Your share of the premium is deducted from your paycheck on a pre-tax basis, and your employer is allowed to pay part of your premium without considering it part of your taxable income.

For a non-dependent DP covered by your insurance, if your employer requires you to pay part of the premium, that is deducted from your paycheck after tax, not before tax. And if your employer pays part of the premium for you, that must be added to your wages. It would be included in box 1 of your W-2 at the end of the year and is subject to income tax, Social Security tax and Medicare tax withholding, as if you had received the same amount as a raise.

It sounds as though the total cost of your partner’s insurance coverage is $523 per month. The $250 paid by your employer is the imputed income, and the $273 that you will be paying is your after-tax share of the premium.

Lgrey8Author

Thanks for your response. That makes sense that I am being taxed on the value given to me - in this case my DPs health coverage. Before I added her I was paying a $25 a month premium. With her added the premium increases to $45. I'm not sure what the exact tax on it would be in California, but if it was something like %40, and the value of her coverage was $523 per month, wouldn't I only owe the tax on that $523? If %40 that would be about $210 per month which would mean $105 taken out of my bi-monthly payhcecks. I don't understand how I'm getting a $274 deduction per paycheck twice a month. If the imputed income is the value that I am receiving in the form of benefits, then why am I paying for all of it? It seems like that defeats the purpose of employee healthcare. I was trying to help my domestic partner and now I'm being deducted way more than she would pay for insurance out of pocket? That just doesn't make sense to me. Is there something key that I'm missing? Thanks again for your explanation. I'm trying to wrap my head around this and just feels like it can't be right.

Opus 17

Employee

So I’m not clear what you mean by “deduction” from your paycheck. You might be talking about a line item pre-tax deduction, a line item after-tax deduction, or a reduction in your take home pay from extra tax withholding, or a combination of all those things.

You say that your share of the premium increased by $20 per paycheck, that you think the employer share of the premium is $250 (but you don’t say if that is per paycheck or per month), and you say that you have a “deduction” of $273 per paycheck, but you don’t say how often you are paid. Can you clarify?

I’m trying to think about how to help you analyze your situation further while asking for the minimum necessary information. Remember that this is a public forum, so don’t post any identifying information like name or an address, and don’t post any information that you would not be comfortable with being public.

let’s try this: what is your gross annual salary, the amount of Social Security withholdings from your last paycheck before adding your partner and your most recent paycheck, and how often are you paid?

Or, perform the following calculations on your last paycheck before you added your partner and your most recent paycheck. Take the amount of Social Security tax and divide by 6.2%. that will get you the amount of earned income that you are being taxed on for that paycheck. (However, this calculation only works if your gross annual salary is less than $132,000. If you salary is higher there is a different calculation we can use.) For example, if your Social Security tax is $286, then your earned income on that check would be $4612.

Your Social Security tax should have gone up with the addition of your partner on your insurance. That translates into extra earned income, which is the imputed income that you are being taxed on, and which should be the value of the employer-paid part of the premium, if the employer is calculating it correctly. What is that figure?

(Your state and federal income tax withholding should also have gone up, but using the Social Security tax is the easiest way to figure out what the amount of imputed income actually is.)