For many individuals involved in domestic partnerships, questions concerning legal rights and privileges can have a significant impact on daily life. For example, understanding how and when your domestic partner can take advantage of your own health insurance plan will likely influence a wide array of decisions. Following the introduction of the Tax Cuts and Jobs Act of 2017, many of the previous policies regarding tax deductions and dependents have changed significantly or been deleted entirely. Although you can no longer claim a domestic partner's health insurance benefits that you pay for as a deduction, you may still be able to take advantage of the federal dependent credit.
Following recent updates to the federal tax code, individuals cannot claim their domestic partner's health insurance premiums as a deductible expense. That being said, they may qualify for a tax credit if their domestic partner meets the qualification standards for a dependent.
Understanding Domestic Partner Tax Benefits
The Internal Revenue Service allows individuals to claim up to $500 for dependents who are eligible as part of the new Credit for Other Dependents framework. Generally speaking, the only way that this credit can be claimed is if the individual serving as the dependent meets IRS policy guidelines for classification as a "qualifying relative."
Although it may initially seem like a domestic partner would not meet these criteria given that they aren't legally a relative, the term adopted by the IRS in this particular situation applies to any individual who meets a series of guidelines in four distinct areas: income levels, location of residency, type of support required and status within the household.
Exploring IRS Domestic Partner Definitions
Within these four general parameters, a variety of questions must be answered to the satisfaction of the IRS before a credit can be earned. With regard to income level, the individual acting as the dependent must earn below a specific amount of income on an annual basis. For tax year 2018, the guidelines state that a qualifying dependent must earn under $4,150.
An individual who is not a legal relative can only qualify as a dependent if they have lived with the individual claiming them as a dependent for the entire year. This does not mean to imply that the dependent has had to physically be in the residence of the individual claiming them every day of the year. Vacations and other temporary relocations are permitted as long as the official residence of the individual is the residence of the taxpayer claiming them.
Finally, concerning support and status, the taxpayer claiming the individual as a dependent must provide for over half of the dependent's annual living expenses. The IRS implements strict regulations and controls with regards to documenting and assessing financial support. For example, if a dependent uses funds from a savings account to pay for more than half of their own living expenses, they cannot be claimed as a dependent. Even if the income they use to support themselves is not earned from employment, it nevertheless acts as qualifying income.
Domestic Partner Health Insurance Tax Credits
In the event that a dependent does meet the standards to qualify for the "Credit for Other Dependents" program, the individual claiming them will be eligible for a $500 tax credit. Although there is no direct method by which an individual can claim a domestic partner's health insurance premiums on their tax return, they will be eligible for a tax credit in the event that their domestic partner is legally a dependent. With that in mind, it is worth taking time to fully evaluate a domestic partner's financial circumstances in order to assess whether or not claiming this credit is a viable option.
Ryan Cockerham is a nationally recognized author specializing in all things business and finance. His work has served the business, nonprofit and political community. Ryan's work has been featured on PocketSense, Zacks Investment Research, SFGate Home Guides, Bloomberg, HuffPost and more.