Chapter 7: What’s It Worth?

by | Feb 21, 2013 | Health Coverage

By: Jeff Chang

With the January 31 deadline for issuing 2012 Forms W-2 behind you, many agencies are breathing a sigh of relief. However after reviewing what we have to say, some of you may decide that it’s time for a “do-over.”


  1. Most, if not all, public agencies in California provide health coverage to domestic partners of their employees on the same basis as they would for the employees’ spouses.
  2. Although the “value” of such coverage for a “registered domestic partner” is nontaxable for California tax purposes, it will be taxable for federal tax purposes, unless the domestic partner qualifies as the employee’s “dependent” for federal tax purposes.
  3. Even if an agency is including the value of domestic partner health coverage on an employee’s form W-2, this value may be understated if it represents only the difference between the single premium and single plus one premium.
  4. The rules regarding what is taxable get even more complicated when you consider the natural or adopted children of a domestic partner.


Unless you know that your agency has fully analyzed these issues and their application to those of your employees with domestic partners, you should consider the following:

  1. If you are not including the value of domestic partner health coverage in your employees’ taxable wages, can you substantiate the basis for this treatment? If not, you may be exposing your agency to additional taxes and penalties for under withholding and under reporting of income. For more on the topic of under withholding and under reporting, see Chapter 5 of this blog.
  2. If you are including the value of such coverage in your employees’ taxable wages, are you (a) including amounts that should not be taxable for federal purposes because the domestic partner qualifies as a dependent or (b) including the wrong amount because you are not valuing the benefit correctly?

Because this issue has come up on several occasions, Chang, Ruthenberg & Long has provided a number of agencies with the explanations, checklists, forms and procedures needed to sort this situation out.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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