How to Understand Domestic Partner Benefits

1.

Go over the details of the available benefits before you or your partner accepts a new position or before switching to your partner's insurance plan. Understand that domestic partners are not eligible for COBRA or pre-tax health savings accounts.

2.

Know that any portion of premiums the company pays is considered income. It is therefore subject to federal taxes as well as FICA tax withholding which includes Social Security and Medicare.

3.

Do the math. If the company pays $200 a month for a partner's insurance premium, the tax could be around $50, assuming a 25 percent tax bracket.

4.

Calculate the true cost of college tuition benefits for partners and their dependant children before enrolling. The amount the employer pays will be treated as income. The feds will calculate your tax assuming this higher "income" is earned 12 months a year, multiply the check by 12 months and then figure the tax. It can boost you to a 35 percent tax bracket or greater.

5.

Put it in perspective. Assuming a 35 percent tax rate, you're still getting a 65 percent college cost benefit.

6.

Consult an accountant to help you minimize the tax burden on tuition benefits. They can advise you whether or not to spread the tuition payment over multiple paychecks. Usually, the fewer paychecks involved, the better.

7.

Ask the employer if they can make up some of the difference that makes your insurance and tuition benefits unequal to those of married couples. Be sure they're aware of the inequity.

Tips and Warnings

  • Be prepared to educate the Human Resources department. They are often unfamiliar with tax issues stemming from domestic partner benefits because "out" gays or lesbians make up only a small portion of total employees.
  • Consider making your partner a dependant, who will then be eligible for full, untaxed benefits.
  • Your new job doesn't offer insurance coverage, but no worries: your partner's got domestic partner benefits. You'll be eligible for health insurance and the employer will even pay your kids' college tuition. But you'd better take a closer look: domestic partners pay whopping federal taxes on such benefits that married couples don't.