<prompt> Human: Greetings, all. Im hoping you can help me navigate a sticky wicket. My employer is planning on reporting an extremely large sum of imputed income -- the value of my domestic partners health insurance over the past 2.5 years -- in my next paycheck to correct a mistake they first made in 2012. Were talking something in the neighborhood of 20,000.This extra income comes with, in theory, a 5,000 tax liability. The rub is that, for the most part, I dont actually owe anything additional! My employer only made a mistake in terms of their own policies and procedures, which are to blindly withhold money for taxes on domestic partners benefits just in case you owe it. Reality: My domestic partner is also my tax code dependent. Her benefits arent taxable; they arent treated as imputed income.Im looking for some advice from you on how to handle this. I cant afford to have money withheld from my paychecks unnecessarily. Further explanation below; feel free to skip to the questions ...Background: My employer provides health insurance for domestic partners. In late 2012, my domestic partner needed coverage, so I added her to my plan. Fast-forward to last week. I get a phone call. Its a nice HR lady with some very bad news. Payroll discovered theyd been screwing up since 2012. They were supposed to be reporting the value of my domestic partners benefits as income. They hadnt. Now, theyre going to report two and a half years worth of imputed income at once in my next paycheck. Bear in mind shes reporting what payroll told her.The long and short of it, Im told, is that this extra income is going to result in an approximately 5,000 tax bill note, this is in theory, as touched on above and explained further below. The system, she said, payroll informed her, is going to take my entire next paycheck and put it toward taxes. Ill then be left with 3,500 due at tax time.However, according to everything Ive read, a domestic partners health benefits from your employer are NOT treated as imputed income IF your partner is also your TAX-CODE DEPENDENT i.e. the value of the benefits doesnt appear on your pay stubs or W-2s. Except for the couple months in 2012 -- the last year in which I did not claim her as a dependent on my tax return -- she was and is my dependent.Long story short, my employer is going to hold 1,500 hostage for the next six to nine months to satisfy a debt I dont, for the most part, even owe. Apparently, some employers verify whose domestic partners receiving benefits are also tax-code dependents and adjust things accordingly. Mine does not, meaning that they treat everyone as if theyre going to owe taxes on imputed income. You just, I guess, have to wait until tax season to get your money back. Stupid ...So, questions: Am I correct that since my domestic partner is also my tax code dependent i.e. I claim her as a dependent on my tax return, the value of the health insurance she receives from my employer is not treated as imputed income? If my employer insists on wrongly treating the value of these benefits as imputed income, can they go back as far as 2012 to calculate it? If they insist, should they really be reporting the entire value in one paycheck or should they be fixing their books on a year-by-year basis and giving me corrected W-2s? If they should give me corrected W-2s, what would that mean for tax year 2012? Unless I am mistaken, the window to correct 2012s tax filing is closed. I am going to argue that they should use some logic and not withhold money for taxes unnecessarily. Is there any reason they shouldnt be able to make an exception in my case, particularly since theyre the ones that goofed? Is there any other way you can think they ought to be going about this? Is there anything I should be doing differently?I have to stop now or I am going to go insane. Ive edited this post a couple of times before submitting it. I hope it makes sense. Thank you!ADDENDUM: Well, I took so long to write this, that I actually received a follow-up phone call from the friendly HR lady yes, she is actually friendly. Turns out the latest is that the supposed liability is up to 7,700. Also, when the system eats my next paycheck to satisfy this debt-on-paper-only, its going to take the money that would normally go toward my healthcare contribution and retirement plan. Im going to be in arrears in those departments and that money will get taken from the paycheck after this one! Ugh ...  <response>: Yeah, you want to get professional help on this ASAP. There is no coming out in the wash here when you file the return. The FICA will be withheld on the additional income and you will be taxed on the income. You wont be able to exclude that income on your 2015 form 1040.I dont know the proper way to handle this, but it sure as heck doesnt seem like this it. 