Health benefits for same-sex marriages and domestic partners

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If your employer provides health insurance to your opposite-sex spouse, the portion of the premiums the company pays for the coverage of your spouse is tax free. Furthermore, if your employer sponsored health plan allows you to pay (a portion of) the cost of your health coverage on a pre-tax basis, the amount you pay for your opposite-gender spouse is also pre-tax basis.

However, these federal tax benefits do not apply to the same-gender couples:

  • If your employer provides health insurance to your same-gender spouse, the portion of the premiums the company pays for the coverage of your spouse are included in your gross income, subject to federal income tax withholding and employment taxes, and are reported on your Form W-2.
  • If your employer sponsored health plan allows you to pay (a portion of) the cost of your health coverage on a pre-tax basis, the amount you pay for your same-sex spouse may not be pre-tax basis.

The only way to avoid these additional federal tax requirements is if your same-sex spouse qualifies as your dependent as defined by IRS.


Contents

Federal Taxes

Employer sponsored health benefits provided to the spouse of an employee are excluded from the employee’s gross income by statute.

However, Internal Revenue Service (IRS) does not recognize the same-sex couples as spouses for federal tax and employee-benefit purposes. Thus, even when your employer provides health insurance coverage for your same-sex spouse or domestic partner, federal tax law considers the value of that coverage, including your pre-tax contributions, as your taxable income.

The only exception is when a domestic partner qualifies as a dependent of the employee under IRS definitions.

As a result, gay, lesbian, bisexual and transgender individuals that secure employer-provided health insurance coverage for themselves and their unmarried partners face a significant tax penalty.

This practice is also unfair to the employer: Employers that extend partner health benefits pay higher payroll taxes. Since the taxable income increases the employee's overall taxable income, it also increases the employer’s payroll taxes (the Social Security and unemployment insurance tax) that employers pay based on employees’ taxable incomes.

Definition of Spouse

Historically, the IRS took the position that one’s marital status, as determined under state law, was recognized in the administration of federal income tax laws. Thus, individuals in a same-sex marriage under state law could be treated as spouses for federal income tax purposes. This included the exclusion of employer-provided health coverage from the employee’s gross income.

In 1996, that changed with the Defense of Marriage Act (DOMA). DOMA says that “in determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

Therefore, an employee’s domestic partner cannot qualify as a spouse for purposes of excluding employer-provided health benefits from the employee’s taxable income.

Exception to Federal Taxes

The only exception to the taxability of domestic partner benefits is if your partner meets the definition of dependent as defined by IRS Section 152. A domestic partner and his/her children can meet the definition of a dependent for the purposes of family coverage if the following conditions are met:

  • They lived with you for the entire year as a member of your household.
  • They were U.S. citizens or resident aliens of the U.S., or residents of Canada or Mexico for part of the calendar year in which your tax year began.
  • They did not file a joint tax return.
  • You provided over half of their support for the calendar year.

If your registered same-sex domestic partner and children meet all of the above requirements (even if you cannot claim an exemption for them on your tax return), you will need to complete a Certification of Dependent Status form. Once you submit this form, taxes will not be withheld.

If state law or local ordinances contain a domestic partner registry, employers might ask to provide evidence that employees and their domestic partners have registered. It is important to note such registration is NOT a condition of an employee’s domestic partner being treated as a qualifying relative for tax putposes. The only definition of the dependency that the domestic partner and his/her children must meet is the one defined by IRS (under Internal Revenue Code §152 (as modified by Code §105(b) and by IRS Notice 200479)). See also the reference.

Eligibility to Health Saving Accounts

Eligible expenses for registered domestic partners and their children may be covered under the flexible spending health care and dependent day care accounts if they meet the definition of dependents under IRS Section 152. They would normally qualify as dependents if the following key requirements were met for the calendar year in which the expenses were incurred:

  • They lived with you for the entire year as members of your household.
  • They were U.S. citizens or residents, or residents of Canada or Mexico for some part of the calendar year in which your tax year began.
  • You provided over half of their total support for the calendar year.

If your registered domestic partner and his/her children meet all of the above requirements (even if you cannot claim an exemption for them on your tax return), you will need to complete a Certification of Dependent Status form.

If the domestic parner and his/her children do not meet the definition of dependents under IRS Section 152, employees cannot use pre-tax dollars to pay for a domestic partner's or same-sex spouse's coverage, precluding them from the full benefits of [Flexible Spending Arrangements].

Health Insurance

Federal law does not require employers to provide coverage to the same-sex spouses and domestic partners.

If your employer does not cover your same-sex partner, check your state laws whether health insurance plans extended to the spouses of the beneficiary are required to cover the same-sex couples.

See the list of current state laws with regards to domestic partners at Human Rights Campaign.

For example, in New York, the same-sex couples in marriages validly performed outside of New York must be treated as spouses for the purposes of New York Insurance Laws, including health insurance. Thus, if an employer chooses to extend its employees’ health coverage to spouses, other family members, or dependents, the employer may not distinguish between types of spouses or other such persons in a manner that is unlawfully discriminatory ([1])

References

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