Earlier this year I started a new job and added my girlfriend to my employer health insurance. My employer gives me discounted insurance rates, and my girlfriend pays me the difference in costs. But after months of this, I just realized that I’ve been receiving something called “imputed income” because of her being on my plan. This means I have to pay taxes on that extra amount. Now I’m wondering, is it fair for me to ask her to pay the taxes on that since she’s the reason I’m paying more taxes?
She’s self-employed, and I think she writes off 100% of her health insurance costs, so to me it makes sense for her to cover this tax because it doesn’t cost her out of pocket in the same way it does for me.
I see where you’re coming from. The extra cost for you is something you could ask her to pay, since it’s because of her being on your insurance.
Imputed income is the extra amount your employer is paying for her on your plan. They pay a certain amount for you and more for both of you, and you have to pay taxes on that extra amount. It’s not on the part that they pay for you.
You should check with your benefits person to see how much of your paycheck goes toward the cost if only you were on the plan versus the two of you. That difference is part of the cost of adding her to your plan.
I think what you’re asking seems fair, and it might actually be cheaper for her than finding a separate health plan.
That said, it was your mistake not to realize the imputed income when you first signed her up. When my son moved out and wanted to pay us for staying on our cell phone plan, I realized I had missed some roaming charges, so I’m in a similar situation.
Do you know how much the imputed income is?
Also, just to clarify, imputed income applies when the dependent isn’t married to you, and the federal tax laws haven’t caught up with people just living together.
Thanks for the response and the personal anecdote. Just to be clear, I’m not upset about the imputed income, but I am just trying to find a fair and equitable way for her and I to split these costs. I have no problem eating the previous tax costs from earlier this year, but moving forward I would like to amend this.
The imputed income is $188 and change per week. But then it’s also deducted so it’s not actually income for me, it’s only added on so I pay the taxes on it.
So, as per your final sentence there, are you saying the imputed income isn’t taxed federally? Sorry for my confusion. I’m absolutely terrible with this stuff.
@Kitt
No, that’s not it. I was just suggesting that if you and your girlfriend get married by December 31, the imputed income could go away. Since you’re not married and she’s not your child, you have to deal with imputed income.
Based on the $188 per paycheck, her share of the cost would be about $38. The next question is how you should split the taxes. One way is to multiply the $188 by 52 weeks and then use your tax rate to calculate the taxes. That would give you an amount to work with, but keep in mind that how you climb through tax brackets matters too.
@Kitt
Thanks for explaining. I get what you were saying now.
As for the tax brackets, we both make very little money. We’re both in the 12% bracket.
Also, I forgot to mention that she’s self employed, so I believe she’s able to write off 100% of her health insurance payments, so with that in mind I’m thinking it makes even more sense for her to pay the full share of the taxes on this, because it’s a fully out-of-pocket expense for me.
@Kitt
She can’t write off health insurance that’s not in her name. For the self-employed health insurance deduction, the policy needs to be in her name or the business’s name.
I’m talking about health insurance here. The imputed income is at around $188 a week, so the tax on that is not just nickels and dimes for us.
As for your points 4 and 5, my girl and I split 99% of the costs of our lives 50/50, down the middle, across the board. We have no problems with splitting costs, so your valid concerns on this matter are already accounted for by us.
@Kitt
Thanks! I missed the original reference to health insurance, and yeah, the taxes on that amount would add up. Sounds like you’ve already got a fair system in place for splitting things.
@Kitt
Thanks for the kind words! We really do strive for equity in our relationship.
Also, I forgot to mention that she’s self-employed, and I’m pretty sure she can write off 100% of her health insurance costs, so I think it makes way more sense for her to pay that than me.
@Kitt
Your girlfriend can’t deduct what she pays you for health insurance.
And even if she could, that wouldn’t mean it’s not money out of her pocket. She could deduct her health insurance but would still pay out-of-pocket for it, just without the federal income tax on it. But again, she can’t deduct what she pays to you.