Friday, June 24, 2011

Bipartisan Bill Would Provide Tax-Free Health Benefits to Domestic Partners

On June 9, Senators Charles Schumer (D-NY) and Susan Collins (R-ME) introduced H.R. 2088, the “Tax Parity for Health Plan Beneficiaries Act of 2011.” The bill would provide federal tax-free health benefits to domestic partners.

Under current federal law, when a company provides health benefits to an employee's spouse and dependents, the value of the entire premium is considered a tax-free fringe benefit for federal tax purposes. However, if the company elects to offer a health plan that covers a domestic partner, the partner's portion of the insurance premium is treated as taxable income. The new bill would amend the Internal Revenue Code so that same-sex and opposite-sex domestic partners who are covered by their partner's employer-based health plan would no longer be treated differently. The bill would not compel any businesses that don't already offer health coverage to domestic partners to do so.

A Schumer/Collins press release on the bill noted that when gay or lesbian workers calculate their payroll tax liability, the value of the coverage provided to their domestic partner is included in their wage base. As a result, both employee and employer payroll tax obligations increase.

The press release also noted that more and more employers are making the business decision to voluntarily provide health benefits to the domestic partners of their employees. As of March 2011, 291 of the Fortune 500 companies, or 58%, were providing such coverage. This is more than a 13-fold increase since 1995.

Some states do recognize same-sex marriages. There is a chart in Payroll Tax Create-a-Chart on this topic.

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