One Way the Tax Code Punishes Domestic Partners
At the beginning of 2014, I put my partner on the medical coverage I receive though my full-time employer. It was a godsend, as going without health insurance and trying to buy your own health insurance in New York City are both surefire paths to the poorhouse. For domestic partners who aren’t married, or for those forbidden from wedding by law, it is perhaps the best work perk you can come by.
We didn’t need it for long: By March, just a couple of months after we signed and notarized an amusing legal document swearing that we were in a “loving domestic partnership,” my partner moved from freelance to full-time and went on her own employer’s insurance. And thank goodness for that, because nobody had warned me about the arcane, insane bureaucratic joy of “imputed income.” When I discovered it, I found out I’d nearly owed several thousand dollars more in taxes on pretend income I never saw.
As the Human Rights Campaign explains, the laws in most states treat your domestic partner differently than your spouse. This is where the pretend imputed income comes into play: “The estimated value of the employer’s financial contribution towards health insurance coverage for non-dependent same-sex partners must be reported as taxable wages earned.”
Yes, you read that correctly. So when I opened my W-2 for 2014, the top number was … high—much too high. Filing your 1040 is the one time in life when you don’t want your income to be significantly higher than you expected. I worked up a quick calculation using that wage number and found that I suddenly owed an extra $3,500 just in federal taxes.
Can’t afford to go without insurance. Can’t afford to buy insurance. Can’t afford to the pay the taxes on insuring your partner.
I’d say there are stages of grief when you realize you owe a fat tax bill, but that cliche should taken out back and shot (so should that one). And besides, it’s more like layers of panic. I must have done the numbers wrong. They must have done my forms wrong. Do I even have enough in the bank to cover this? What the fuck am I going to do if I don’t? My cats count as dependents, don’t they? Maybe the IRS won’t even notice a little creative accounting. I know they’re understaffed. I heard it on John Oliver. God, I’m so glad he’s not running back to The Daily Show. Good for him. Wait, shit, how am I going to pay my taxes?
I knew my W-2 had to be wrong—it was that far off from what I truly earned in 2014. But this isn’t an itemized Trader Joe’s receipt. Taxable income is just this number in a grid that is not to be questioned. It’s in a grid. It’s supposed to be right. I had to call actual humans (who were delightful!) just to find out about the world of make-believe imputed income. A few complaints a little higher up the ladder and I had the problem: The company reported 12 months of imputed income on health insurance that lasted only two months, which, if my math checks out, is not correct.
New forms came, taxes were redone, liabilities were lessened. Paying taxes on two months of voodoo income is bad enough, but it’s a survivable hit. For me, angst maxed out at a could-have-been—the tax bill I would have been blindsided with if I’d kept my partner on my insurance all year, an IRS punishment numbering in the thousands.
Andrew Moseman is the Online Editor for Popular Mechanics. His work has appeared in Discover, Esquire, Playboy, The Awl, the Georgia Tech Alumni Magazine, and elsewhere.
Photo: Alan Cleaver