Understanding Imputed Income for California “Registered” Domestic Partners 

January 2026

Diana Craig, Director, Benefits Compliance

Domestic partners will generally not receive tax favored employer sponsored group health plan benefits under federal law. This means that domestic partners will have the Fair Market Value (“FMV”) of coverage imputed as income for federal tax purposes. Many states also require the FMV of coverage imputed under state tax laws. However, if the domestic partner of an employee qualifies as a federal tax dependent, specifically a “qualifying relative,” under Code § 152 (modified by § 105(b)), the employee will not have the FMV of coverage imputed as income under federal or state law. However, many domestic partners do not qualify as federal tax dependents, often because they do not receive over half of their financial support from the employee, and the children of a domestic partner almost never qualify as the tax dependent of the employee because for that tax favored status to attach the child cannot be the “qualifying child” of any other taxpayer. The children of domestic partners can also receive tax favored benefits if formally recognized as “stepchildren” under state law.

California has a separate set of rules that apply to “registered domestic partners” that can result in significant state tax savings for employees. Registered domestic partners must meet the requirements in California Family Code § 297 and formally register with the Secretary of State. These special tax rules make it important for employers with group health plans covering California residents and domestic partners to understand whether a domestic partnership is formally registered. This is in part because term domestic partner can refer to Registered Domestic Partners (registered with the Secretary of State), as well as unregistered domestic partners that are simply recognized by an employer as benefits eligible (often referred to as affidavit domestic partners as affidavits are commonly used to certify that eligibility requirements are met and will require an employee to come forward when the relationship no longer meets the terms for plan eligibility). State, and to some extent federal, tax status of benefits will depend on registration status.

California extends state tax favored status to the value of employer provided benefits to both registered domestic partners and the children of registered domestic partners. The children of a registered domestic partner receive tax favored benefits because state law recognizes these children as “stepchildren” of the employee. This state recognized “stepchild” status also means that there will not be imputed income for the value of benefits provided to these children under federal law. This results in significant tax savings for employees with registered domestic partners as opposed to unregistered partnerships. Federal and state tax status and whether imputed income is required breaks down as follows:

Lastly, the California Insurance Equality Act mandates that registered domestic partners be treated the same as spouses. This means that employers with fully insured health plans in California are required to offer coverage to registered domestic partners on the same terms as spouses. Note that effective January 1, 2020, both same sex and opposite sex partners can register with the Secretary of State and will be included in this coverage mandate. California law also provides that Insurance Equality Act governs any insurance policy issued in any state that covers California residents (extraterritorial application), which can be difficult to enforce. This state coverage mandate makes understanding whether domestic partners are registered and whether imputed income is required especially important. This coverage mandate does not apply to self-funded plans.

Employer Action Items

• Review group health plan eligibility for compliance. Make sure fully-insured medical plans extend eligibility to California registered domestic partners. For insured plans sitused in other states ask carriers about their approach to this coverage mandate.
• Confirm which domestic partners are benefits eligible. Employers can limit eligibility to registered domestic partners or cover less formal partnerships but it is important to document who is eligible and which domestic partners are registered.
• Ask employees enrolling domestic partners to certify federal tax status. If the Domestic Partner of an employee qualifies as a federal tax dependent the employee will not have imputed income under federal or state law.
• Work with your tax or payroll advisor on how to impute income. Although Registered Domestic Partners will have significantly less imputed income, imputed income will likely still apply at the federal level for some employees.