Can our Health FSA reimburse an employee’s domestic partner?

Question: We’ve been asked whether our Health Flexible Spending Account (FSA) can reimburse medical expenses incurred by an employee’s nonspouse domestic partner. Are these expenses eligible for reimbursement?

Answer: It depends. Under Internal Revenue Code Section 105(b), only the following individuals’ medical expenses are eligible for tax-free reimbursement from a Health FSA:

  • The employee,
  • The employee’s spouse,
  • The employee’s child who’s under age 27 as of the end of the employee’s taxable year, and
  • An individual who’s the employee’s tax dependent for health coverage purposes.

If the expenses of other individuals are reimbursed, the reimbursements would, at minimum, be taxable. They could even disqualify the Health FSA. So, your Health FSA should reimburse otherwise-eligible medical expenses of an employee’s nonspouse domestic partner only if the domestic partner qualifies as the employee’s tax dependent for health coverage purposes, and only if the Health FSA doesn’t use a narrower definition of “dependent.”

Generally, the following conditions must be met for a domestic partner to qualify as an employee’s tax dependent for health coverage purposes under federal law:

  • The employee and domestic partner must have the same principal place of abode for the calendar year.
  • The domestic partner must be a member of the employee’s household for the calendar year.
  • During the calendar year, the employee must provide more than half of the domestic partner’s support.
  • The domestic partner must not be the employee’s (or anyone else’s) qualifying child under Internal Revenue Code Section 152(c).
  • The domestic partner must be a U.S. citizen; a U.S. national; or a resident of the U.S., Canada or Mexico.

Your organization can rely on an employee’s certification as to a domestic partner’s tax dependent status. Note that federal and state tax laws may differ in their treatment of health benefits for domestic partners and civil union partners, so be sure to check the treatment of such benefits under any applicable state tax laws.

© 2018

Published in Healthcare

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