Scenario - Employer pays a small portion of health premiums for eligible dependents. Those same premiums can also be paid towards eligible domestic partners, but employer premium for domestic partners is directed back to the employee as imputed income.

Question - How is premium added to employee's gross wages? Is it just added to gross wages at the end of the year? 1099?

yes it is included as additional gross income at end of year on W-2

Have not researched FICA issue in a while.

I think it should be added on a monthly basis, that way your not hitting your employees with a large taxable amount all at once, plus it would be easier to charge the correct amount for anyone who wasn't on the plan for the whole year.