Note: U-M benefits for same-sex domestic partners (SSDP) concluded at the end of 2007 to comply with the current Michigan Court of Appeals ruling on same-sex partner benefits. Accordingly, references to U-M recognized Same-Sex Domestic Partnerships in all University policies and documents (other than existing collective bargaining agreements) have been rendered invalid. 

You and the University share the cost of covering a same-sex domestic partner and/or his/her eligible dependent children—the same as you would for coverage of a spouse and your own eligible dependent children. However, there are additional financial and tax implications to consider. The Internal Revenue Service (IRS) has determined that the University’s cost of providing benefits for same-sex domestic partners and their children who do not meet the IRC Section 152 (as modified by Code105(b)) definition of qualified dependents is considered ordinary or “imputed income” and is, therefore, subject to taxes. (See An Exception to the Rule: Dependents for Federal Income Tax Purposes for further explanation of these rules.)

The University must report the fair market value (FMV) of an employee’s domestic partner benefits as wages or “imputed income” to the Internal Revenue Service resulting in increased taxable gross income for federal, state and city (where applicable) income taxes as well as for FICA (Social Security and Medicare) taxes withheld from the employee’s paycheck. As a result, the cost to the employee of obtaining benefits for a same-sex domestic partner is actually more than just the cost of the employee’s required bi-weekly or monthly premium. Additionally, if an employee elects to pay, or is defaulted to premium deductions on a pre-tax basis, the employee contribution amount attributable to domestic partner coverage is converted to an after-tax deduction.

Imputed Income Reporting
Imputed income for taxes attributable to your partner and/or their children’s coverage will be reported on one line item within the Hours and Earnings box described as Dependent Personal Insurance or “DPI” on your bi-weekly or monthly pay stub. This amount represents the University’s cost of providing benefits for your partner and/or their children as well as any employee pre-tax deductions attributable to domestic partner coverage that must be converted to an after-tax deduction. The effect of reporting this amount as DPI will “gross-up” your actual gross earnings so that required taxes on the imputed income will be deducted from your monthly or first and second biweekly paychecks of the month.

Imputed income does not affect calculations for University-sponsored life or retirement or disability income. Nor does imputed income affect dependent life or legal plan coverage because both benefits are paid entirely by the employee and deductions are always taken on an after-tax basis.

To help you calculate the approximate amount and impact of the additional annual taxes you will pay on imputed income for your benefit elections; complete the 2007 or 2008 Tax Worksheet for Same-Sex Domestic Partner Benefits below.

Tax Worksheet and Instructions
For an imputed income worksheet you can fill out online and print, click the link below:
2007 Tax Worksheet for Same-Sex Domestic Partner Benefits (PDF)
2008 Tax Worksheet for Same-Sex Domestic Partner Benefits (PDF)

1. The Imputed Income Table accessible from the link below reflects the additional taxation required to cover your partner and his or her children depending on your benefit plan and coverage level. For medical, you will also need to identify your employee contribution— is your deduction taken on a pre-tax or after-tax basis?

2007 Imputed Income Tax Table (PDF)
2008 Imputed Income Tax Table (PDF)

2. Fill in each box on the Imputed Income Worksheet using the amounts you've identified from the Imputed Income Table. Follow the instructions through step 10 to arrive at an approximation of additional 2007 or 2008 annual taxes you may be assessed for covering your partner and his or her children who do not meet the Internal Revenue Code's definition of qualified dependents for group health plans. Keep in mind there are many variables that can affect this estimation, particularly your Federal tax bracket and the number of eligible exemptions you are claiming.

An Exception to the Rule:  Dependents for Federal Income Tax Purposes
If your same-sex domestic partner and/or his/her eligible dependent children qualify as your dependents under IRC Section 152 (as modified by Code105(b)), the University costs for their benefits are not considered taxable income to you.
Generally, to qualify as an IRC Section 152 dependent (as modified by Code 105(b)) of an employee during a given tax year, the domestic partner and partner’s children must be a "qualifying relative" of the employee. To be a "qualifying relative", the domestic partner must meet the following requirements: 

1. Have the same principal place of abode as the employee for the full tax year (January 1 through December 31), except for temporary absences such as vacation, military service, or education. If the partnership dissolves other than on December 31, for reasons other than the death of the domestic partner, the tax exclusion is lost for the entire year.  If the relationship terminates due to the death of the partner, the partner would continue be treated as a dependent for the entire tax year;
2. Receive more than half of his or her support from the employee;
3. Be a U.S. citizen, U.S. national, or a resident of U.S., Canada, or Mexico; and,
4. Not be the employee's (or anyone else's) "qualifying child" under Code Section 152.

An employee wishing to claim his or her domestic partner and partner’s dependent children as tax dependents for insurance purposes under IRC Section 152 (as modified by Code105(b)) must complete and sign the Declaration of Tax Status Form (PDF). It is noted that Section 152 dependent status must be re-declared each tax year. 

Employees are strongly encouraged to consult with a tax advisor before declaring a partner satisfies each of the above requirements to be considered a qualifying relative as defined by the IRS. The University will assume your same-sex domestic partner (and/or your partner's child) DOES NOT qualify as your tax dependent for tax-free University sponsored health insurance unless a Declaration of Tax Dependency Form  (PDF) is completed at the start of each tax year and is on file with the Benefits Office.