When your business pays all or part of the premiums for insurance that covers domestic partners of your employees, the contribution counts as income. This "imputed" income is taxable, and you must keep track of how much you pay for domestic partner benefits so you can report the additional income to the Internal Revenue Service, pay the company share of Social Security and Medicare taxes and deduct the expense from your business income.

Who Qualifies as a Domestic Partner

Your company doesn't have to require proof of domestic partnership. However, you can ask for a partnership affidavit as defined by the insurer, a municipal domestic partnership registration, state domestic partnership registration or a state civil union license. You can ask for any and all of these if you wish. This is to ensure that the nonemployee you cover actually lives with the employee. If your state does not recognize civil unions from other states, you may do so if you wish.

Family Coverage

When you offer family coverage that includes a domestic partner and that domestic partner's child, the part of the premium that exceeds the employee portion is imputed income. This applies to any family-priced package you may offer. Imputed income also includes any individual policies that cover domestic partners and their children.

IRS Rules

Imputed income includes any amount your business pays for benefits that cover domestic partners of your employees. This includes company contributions to accident and health benefits, adoption assistance, dependent care assistance, group-term life insurance coverage and company contributions to health savings accounts. Imputed income only covers the portion of benefits the domestic partner receives. For example, a health premium that covers an employee and a partner is not 100 percent imputed income. Only the domestic partner's premium is.

Employer Calculation of Imputed Income and Taxes

You can find the imputed income you pay by subtracting any portion over and above the employee's benefits. You then multiply that figure by the rates you pay for the employer portion of Social Security tax and Medicare tax. As of publication, that combined rate is 7.65 percent. You only have to pay Social Security tax on the first $117, 000 of income, including imputed income.

Employee Calculations

Employees subtract the portion of benefits paid for a domestic partner. An employee must calculate state income taxes, federal income taxes and Social Security and Medicare taxes on the imputed income. The Social Security and Medicare rate is 7.65 percent as of publication. State and federal tax rates vary according to the individual's total taxable income.