How does a group calculate the Fair Market Value of domestic partnership benefits and report them? Is it at the end of the year or could that be set up with an after-tax deduction?
The IRS takes the position that domestic partner benefits must be taxable to the employee at Fair Market Value. This means the employee can pay for the benefit with after-tax contributions and/or the employer can impute the Fair Market Value on the employee’s wages. The IRS believes Fair Market Value is what the domestic partner would pay for the coverage. If the employee is just adding a domestic partner, this would be the value of employee-only coverage. In other words, Fair Market Value would be the COBRA premium for employee-only coverage. If the domestic partner has children, you would look to the COBRA rate for employee + children coverage (or family coverage depending on the available tiers).
So you would take the COBRA rate less any amount paid by the employee for the domestic partner coverage on an after-tax benefit, and you would impute income for the difference.