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Imputed Income

Source: SkyNet (United's Intranet)

The Internal Revenue Code does not recognize a domestic partner relationship in the same way as it does a marriage for tax purposes. While your domestic partner is eligible to receive benefits, the fair market value of the benefits is reported as additional income to you and is taxed accordingly. For medical and dental benefits, a monthly premium amount is added to your income. For travel benefits, the difference between the service charge and the companion fare for a segment will be added to your income. This is considered as non-cash, or imputed income, that is added to your other income and taxed accordingly. Your net paycheck will be less than it would be without the imputed income since the imputed income is subject to applicable income tax withholding and FICA taxes. Other benefits are also subject to imputed income such as company provided life insurance. Your Form W-2 will include total imputed income along with other compensation in box 1.

Here are two examples of imputed income, calculated for domestic partner travel. The Companion fare (or Fair Market Value) is the basis for calculation, minus the appropriate service charge which was paid, equals the imputed income. The Service Charge is deducted from the paycheck just the same as it is now. The imputed income amount and a brief explanation will appear on the employee’s paycheck stub.

Travel

Example 1

Domestic Partner uses Employee Pleasure travel benefit: SFO to HNL

Companion Fare = $ 70.87
Economy Cabin (Y/C) = -$ 13.15
(standard paycheck deduction for class of service flown.)    
Imputed Income = $ 57.72

Example 2

Domestic Partner uses Employee Pleasure travel benefit: DEN to MIA

Companion Fare = $ 99.26
First Class Cabin = -$ 25.78
(standard paycheck deduction for class of service flown.)    
Imputed Income = $ 73.48


Imputed income is added to an employee's W-2 earnings

Imputed income is subject to FICA, Federal and state tax withholding

Medical

If an employee participates in a United medical plan -- Traditional or HMO -- and covers a domestic partner as his/her dependent, United will pay the same amount toward the partner's coverage that it would pay toward any dependent's coverage. Because the Tax Code does not allow these benefits to be provided on a tax-free basis, however, the value of the benefit must be imputed as income to the employee. The amount of the income is the cost to United of single-level coverage under the Traditional Medical Plan. Where an employee elects to cover a domestic partner as his/her dependent under a United medical plan, this amount will be included as income on the employee's W-2 for the calendar year, and United will withhold tax on that amount for each month that it is imputed to the employee. (The exact amount will vary just as the amount of any individual's taxes varies according to marital status, number of exemptions claimed, etc.)

In addition to imputed income, the decision to cover a domestic partner may also affect an employee's payroll deductions. Where an employee is enrolled in a medical plan, and where the employee covers a domestic partner as his/her dependent, the portion of the payroll deduction that is attributable to the partner's coverage cannot be deducted on a pre-tax basis. Instead, the employee will see his/her monthly medical payroll deduction broken out in two pieces -- a pre-tax piece and a post-tax piece. The post-tax piece will equal the single-level payroll deduction; the pre-tax piece will equal the difference between the family-level payroll deduction and the single-level payroll deduction. (Note that the total of both pieces will equal the monthly family-level payroll deduction.)

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