Domestic partner benefits: Good intentions vs. the law
August 12, 2009 by Bill MeltzerPosted in: COBRA, Employment law, FMLA, Health care, Pay and benefits, Special Report - Benefits
Roughly one-third of U.S. employers offer currently domestic partner benefits, whether for opposite-sex partners, same-sex partners or both.
Regardless of your company’s policies – or your personal beliefs – it’s important to know how these benefits (or the lack thereof) are affected by federal and state regs.
Here’s a rundown of how COBRA, flexible spending accounts, HIPAA, FMLA and tax regulations affect these benefits:
COBRA
Currently, there’s no federal requirement for employers to offer COBRA to an employee’s domestic partner who loses coverage due to what would otherwise be a qualifying event. However, many employers choose to do so, anyway.
Be careful if you choose not to offer COBRA to domestic partners. You’re not necessarily in the clear legally. State insurance laws often vary from their federal equivalents.
Flexible spending accounts
In most cases, an employee’s flexible spending account (FSA) money may not be used to reimburse health care for a same-sex domestic partner, even if you do provide other domestic partner health benefits.
Reason: The IRS has ruled employer-sponsored health benefits are exempt from taxable income only if domestic partners (same or opposite sex) are legally considered spouses or dependents under state law.
Fifteen U.S. states plus the District of Columbia give tax-favored status to opposite-sex common-law marriages. Sixteen states that lack common law marriage statutes will grant tax-favored status to couples who register as common-law partners in other states.
The tax on healthcare expenses for partners that can’t get tax-favored status in your state is determined by your average local market cost for a domestic partner’s health coverage.
One case where FSAs might be used for same-sex partners: The partner meets criteria under the Working Families Tax Relief Act (WFTRA). Under WFTRA, the partner must live with the employee for more than half the year and receives more than half his or her support from the employee.
HIPAA
Domestic partner benefits are something of an anomaly under federal HIPAA regulations. In the first place, HIPAA protects the portability of employee health coverage. But domestic partner benefits aren’t necessarily portable if an employee changes jobs. It all depends on whether the new employer offers such coverage, and on state insurance laws.
On the flip side, if your organization’s health plan (like most) is covered under HIPAA, the act’s non-discrimination rules apply to domestic partners to the same extent that a spouse or dependent covered under your plans would be.
Example: If you offer domestic partner health benefits and have a wellness program in which an incentive for undergoing a health risk assessment is available to employee’s spouses, you can’t exclude the domestic partner from receiving the incentive.
As for HIPAA’s privacy rules for protected health information, it works the same for domestic partners as for anyone else covered on your health plan.
FMLA
Family leave under federal FMLA only may be taken to care for a spouse, child or parent with a serious health condition.
The regulations define spouse as “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.”
In other words, an employee’s right to take family leave depends entirely on whether the relationship holds the legal status of a common law marriage (for opposite sex partners), civil union (for same sex partners) or same-sex marrage (in Massachusetts).
Taxes
Unlike typical benefits for spouses and dependents, domestic partner benefits are subject to both federal and state tax as a form of compensation, according to the Partners Task Force for Gay and Lesbian Couples.
In terms of administration, however, benefits such as paid bereavement leave tend to work the same in terms of their tax treatment.
August 13th, 2009 at 10:11 am
Hello, I have never heard the following: that “The IRS has ruled employer-sponsored health benefits are exempt from taxable income only if domestic partners (same or opposite sex) are legally considered spouses or dependents under state law.” We have been taxing the amount of health insurance provided by us (the employer) for the domestic partner. Do you have a reference or citation for the ruling that says the above? It would greatly help our administration.
August 13th, 2009 at 11:31 am
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.
See also the IRS definition of spouse in § 152
See also page # 10
http://www.irs.gov/pub/irs-wd/0524016.pdf
August 13th, 2009 at 12:19 pm
I am not aware of any provision under the Working Families Tax Relief Act that would allow for coverage of partner expenses under a FSA. Can you provide a reference or citation on this as well?
August 13th, 2009 at 12:31 pm
The Working Families Tax Relief Act (WFTRA) amended the definition of a qualifying tax dependent in IRC §152.
As defined in IRC §152, a “qualifying child” must be the natural or adopted child of the taxpayer (or bear other specified relationship to the taxpayer) and also meet the following requirements:
have the same principal place of abode as the taxpayer for more than one-half of the taxable year,
satisfy age requirements (i.e., must not have attained age 19 before the close of the calendar year in which the taxable year of the taxpayer begins if not a student or, if a student, must not have attained age 24 before the close of the calendar year in which the taxable year of the taxpayer begins, or must be permanently and totally disabled), and not have provided over one-half of such individual’s own support for the calendar year in which the taxable year of the taxpayer begins.
A child who does not qualify as a “qualifying child” may be considered a tax dependent under the definition of a “qualifying relative” if you provide over half the child’s support and satisfy other requirements. The qualifying child and qualifying relative rules can be found in IRS publications. Check with IRS (http://www.irs.gov, 1-800-829-4933, TDD 1-800-829-4059) or your tax advisor for detailed IRS qualification rules.
August 13th, 2009 at 2:17 pm
I’m confused… on this part:
Taxes
Unlike typical benefits for spouses and dependents, domestic partner benefits are subject to both federal and state tax as a form of compensation, according to the Partners Task Force for Gay and Lesbian Couples.
In terms of administration, however, benefits such as paid bereavement leave tend to work the same in terms of their tax treatment.
I’m in Ohio and my boyfriend and I are domestic partners and I’m registered with my employer as having a domestic partner…but we still have to file our taxes as single…but according to this statment I can be taxed for benefits that he may use from my employer but we can’t file jointly for any tax breaks as a married couple would (I’m female)? If I understand that correctly…that’s crap!
August 14th, 2009 at 10:33 am
I read your response about a “qualifying child” definition. I don’t, however, see a reference to support the presentation that domestic partners expenses may be covered by an FSA under the Working Families Tax Relief Act, which was my initial inquiry. Is there a reference or citation to support this statement?
YOUR STATEMENT:
“One case where FSAs might be used for same-sex partners: The partner meets criteria under the Working Families Tax Relief Act (WFTRA). Under WFTRA, the partner must live with the employee for more than half the year and receives more than half his or her support from the employee.”