Imputed income is the taxable value of a non-cash benefit an employer provides to an employee. Because CoAd calculates domestic partner benefits as post-tax, the extra cost of covering a domestic partner is added to the employee's gross taxable income.
How imputed income works
When an employee receives non-cash compensation that is considered taxable, the value of that benefit becomes imputed income to the employee. Imputed income is added to the employee's gross (taxable) income, but it is not included in net pay, because the employee has already received the benefit in some other form.
How CoAd treats domestic partners
CoAd differentiates between a spouse and a domestic partner for benefit contribution calculations. The system automatically calculates the benefits for domestic partners as post-tax.
Employees can see the pre-tax and post-tax cost distribution for their health benefit plans in the Benefits Enrollment Wizard. When an employee has a Domestic Partner dependent, the system automatically displays an additional section in the Benefits Enrollment Wizard with the heading "*Some portion of benefit premiums paid with after-tax dollars". That section shows the distribution of the pre-tax and post-tax costs for the selected plan.
Example health plan costs
Example costs for a medical coverage option with 4 tiers:
| Medical Plan Coverage Tier | Employee Cost | Employer Cost |
|---|
| Employee Only | $250 | $100 |
| EE + Children | $620 | $115 |
| Family | $760 | $220 |
| Employee + Spouse | $570 | $110 |
Example costs for a dental coverage option with 3 tiers:
| Dental Plan Coverage Tier | Employee Cost | Employer Cost |
|---|
| Employee Only | $140 | $110 |
| Employee + 1 | $150 | $130 |
| Employee + 2 or More | $150 | $150 |
How the imputed income is calculated
The system calculates the post-tax amount as the difference between the coverage with a domestic partner and the coverage without a domestic partner — that is, by subtracting the coverage without a domestic partner from the coverage with a domestic partner.
Note: The system calculates the employer pre-tax cost and imputed income in the same way that it calculates the post-tax cost for the employee.
| Plan | Covered People | Employee Medical Pre-Tax | Employee Medical Post-Tax | Employer Medical Pre-Tax | Imputed Income |
|---|
| Medical plan – 4 tiers | Employee Only | $250 | $0 | $100 | $0 |
| Medical plan – 4 tiers | Employee + Domestic Partner | $250 (rate for Employee Only) | $320 = (Employee rate for Employee + Spouse) − (Employee rate for Employee Only) = 570 − 250 | $100 (employer rate for Employee Only) | $10 = (Employer rate for Employee + Spouse) − (Employer rate for Employee Only) = 110 − 100 |
| Medical plan – 4 tiers | Employee + Domestic Partner + Child + Domestic Partner Child | $620 (rate for EE + Children) | $140 = (Employee rate for Family) − (Employee rate for EE + Children) = $760 − $620 | $115 (employer rate for EE + Children) | $105 = (Employer rate for Family) − (Employer rate for EE + Children) = $220 − $115 |
| Dental plan – 3 tiers | Employee + Domestic Partner + Child + Domestic Partner Child | $150 | $0 | $150 | $0 |
Three-tier plans: when no post-tax applies
When an employee enrolls in a 3-tier plan and wants to cover their domestic partner and at least two other dependents, the system does not calculate post-tax. This is intentional: the cost is based on the first 2 dependents, and the domestic partner is considered the third or "free" dependent, so no post-tax portion is applied.
If, however, the employee wants to enroll their domestic partner and only one child, the system does calculate post-tax, because the domestic partner is considered one of the 2 dependents in the tier for whom premium is charged.
Frequently asked questions
What is imputed income?
Imputed income is the value of a service or benefit that employers provide to their employees which must be treated as income. It is added to the employee's gross (taxable) income but is not included in net pay, because the employee has already received the benefit in some other form.
Why is domestic partner coverage taxed differently than spouse coverage?
CoAd differentiates between a spouse and a domestic partner for benefit contribution calculations, and the system automatically calculates the benefits for domestic partners as post-tax. Employees can see the pre-tax and post-tax cost distribution for their health benefit plans in the Benefits Enrollment Wizard.
How is the post-tax amount for domestic partner coverage calculated?
The system calculates the post-tax amount as the difference between the coverage with a domestic partner and the coverage without a domestic partner — that is, by subtracting the cost of coverage without the domestic partner from the cost of coverage with the domestic partner. The employer pre-tax cost and the imputed income are calculated the same way.
Why is no post-tax amount showing on a 3-tier plan?
When an employee enrolls in a 3-tier plan and wants to cover their domestic partner and at least two other dependents, the system does not calculate post-tax. This is intentional, because the cost is based on the first 2 dependents and the domestic partner is considered the third or "free" dependent, so no post-tax portion is applied.
Where can an employee see the after-tax portion of their premium?
When an employee has a Domestic Partner dependent, the Benefits Enrollment Wizard automatically displays an additional section headed "*Some portion of benefit premiums paid with after-tax dollars." That section shows the distribution of the pre-tax and post-tax costs for the selected plan.
Worked example: how domestic partner coverage changes the tax split
The figures below are the illustrative example carried in the original article (sample employee, plan year effective 07/01, per pay period).
Medical plan rate table used in the example
| Coverage tier | Employee cost | Employer cost |
|---|
| Employee only | $250.00 | $100.00 |
| Employee + spouse | $570.00 | $110.00 |
| Employee + children | $620.00 | $115.00 |
| Family | $760.00 | $220.00 |
Medical - worked results
| Enrollment | Your pre-tax | Your post-tax | Your total | Employer pre-tax | Imputed income | Employer total |
|---|
| Employee only (baseline) | $250.00 | $0.00 | $250.00 | $100.00 | $0.00 | $100.00 |
| Employee + domestic partner | $250.00 | $320.00 | $570.00 | $100.00 | $10.00 | $110.00 |
| Family (domestic partner + DP child) | $620.00 | $140.00 | $760.00 | $115.00 | $105.00 | $220.00 |
Dental plan rate table used in the example
| Coverage tier | Employee cost | Employer cost |
|---|
| Employee only | $140.00 | $110.00 |
| Employee + 1 | $150.00 | $130.00 |
| Employee + 2 or more | $150.00 | $150.00 |
Dental - worked results
| Enrollment | Your pre-tax | Your post-tax | Your total | Employer pre-tax | Imputed income | Employer total |
|---|
| Employee + 2 or more | $150.00 | $0.00 | $150.00 | $150.00 | $0.00 | $150.00 |
| Employee + 1 | $150.00 | $0.00 | $150.00 | $130.00 | $20.00 | $150.00 |
The pattern to read from this: the portion of the premium attributable to a domestic partner (and a domestic partner's child) cannot be taken pre-tax, so it moves into the employee's post-tax column, and the employer's share for those dependents becomes imputed income rather than a pre-tax contribution.
