Domestic Partner Health Benefits and Tax Policy

Domestic Partner Health Benefits
and Tax Policy
Nearly 6 million Americans live together as unmarried partners.1 Currently, the federal tax
code treats health benefits for unmarried and married partners differently, contributing to
higher rates of uninsurance among those c Making R
ouples who ar eal P
e unmar r
r og
ied.2 ress f
Compr or Women and Health C
ehensive health
are
reform must include efforts to revise federal and state policies that unfairly tax health benefits
for unmarried partners.
Health Insurance for Domestic Partners: Same Benefits, Different Tax Treatment
Most nonelderly women, and
most Americans in general, get
What Is a Domestic Partnership?
their health care coverage tax-
free from an employer. In the
A domestic partnership is a legal or personal
United States, most women with
relationship between two individuals who live together
health insurance are covered
and share a common domestic life but are not joined
through an employer-sponsored
by a traditional, government-sanctioned marriage.
health plan. In 2007, 39 percent
The federal government does not currently recognize
of nonelderly women were
domestic partnerships, but as of June 2008, 9 states—
covered through their own
California, Connecticut, Hawaii, Maine, New Hampshire,
employer’s plan and another 25
New Jersey, Oregon, Vermont, and Washington—and
percent were covered as spouses
the District of Columbia provided relationship-
or dependents under a family
recognition structures for domestic partners, typically
member’s employer-sponsored
through laws that allow civil unions or that establish
plan. 6
domestic partner registries.3,4
The majority of employers who
The majority of the above states have instituted these
offer health insurance to their
structures as a way to recognize same-sex unions,
employees also offer health
though some states’ laws apply to both same-sex and
insurance for the employees’
opposite-sex couples. Additionally, Massachusetts
spouse and children. Like the
and Connecticut5 offer same-sex couples all of the
job-based coverage an employee state-level rights and benefits of marriage, and New
receives, coverage for a spouse
York recognizes marriages by same-sex couples legally
or dependent child is not taxed
entered into in another jurisdiction.
because it is not considered
Regardless of whether their state formally recognizes
employee income by the state or
such relationships, employers may choose to offer
federal government. This means
health benefits to workers’ domestic partners.
that employees receive a double
Employers themselves can determine the criteria for
benefit – health insurance for the a domestic partnership, including whether same-
people they care about, on a tax-
sex couples and/or opposite-sex couples qualify. For
free basis.
example, an employer may determine eligibility for
But workers with unmarried
domestic partner benefits by requiring employees to
domestic partners are unlikely
sign an “Affidavit of Domestic Partnership” and show
to receive an employer offer
proof of their partnership, such as evidence of joint
of health coverage for their
purchase and ownership of a home.
partner; those who can get
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Domestic Partner Health Benefits and tax Policy
benefits for their partners do not receive the same federal tax benefits as their married coworkers.
In contrast to their married coworkers, employees with unmarried domestic partners do not
receive the aforementioned “double benefit.” An overwhelming majority of American employers—
roughly three out of four—do not offer health benefits to the domestic partners of their workers;
employees of small businesses are especially unlikely to get an offer of domestic partner health
benefits.7
Even if a worker is able to get health benefits for her domestic partner through her employer, her
partner’s coverage does not receive the same favorable tax treatment as coverage for spouses and
children. Domestic partner health benefits are treated like income by the federal government and
most states, and are taxed as if the employee received a raise in salary for the value of the health
coverage.
Because of this unequal tax treatment, workers who get job-based health insurance for their
domestic partners pay an average of $1,069 more per year in federal taxes than their married
counterparts who get the same coverage
State Tax Laws and Domestic Partner Benefits
for spouses or children. Collectively,
The majority of states generally follow the federal
unmarried partners spend roughly $178
lead on tax policy, but a handful of states have
million per year in additional federal
adopted tax laws that give domestic partner
income taxes.
health insurance benefits the same favorable tax
This unequal tax treatment also provides
treatment as other job-based dependent coverage. a disincentive for employers to offer
For example, some of the state relationship-
coverage for domestic partners. Because
recognition laws referenced on the previous page
partner coverage counts as employee
influence how domestic partner health benefits
income and raises the firm’s total payroll,
are taxed. In those states where domestic partner
employers pay more in payroll taxes
health benefits are treated differently by federal
when they cover partners versus other
and state tax systems, employers and employees
family members. U.S. employers pay
must calculate income in several different forms
an estimated $57 million per year in
based on state guidelines and then based on
additional payroll taxes because of this
federal guidelines.9
situation.8
Federal Proposals Related to Domestic Partner Health Benefits
Though the federal government has not yet taken any actions that would improve circumstances
for workers with domestic partners, two notable health reform proposals have been introduced in
Congress that would benefit couples in domestic partnership arrangements:


The Tax Equity for Domestic Partner and Health Plan Beneficiaries Act (S. 1556), sponsored by
Senator Gordon Smith (OR), would eliminate the unequal tax treatment of domestic partner
benefits so that the value of these benefits would be excluded from their federal income tax.


The Domestic Partnership Benefits and Obligations Act (H.R. 3848), sponsored by
Representative Tammy Baldwin (WI), would provide domestic partnership benefits (including
retirement, life insurance, and health benefits) to all federal civilian employees on the same
basis as spousal benefits. The legislation would allow domestic partners of eligible federal
employees to get coverage through the Federal Employees Health Benefits Plan (FEHBP),
which is the largest employer-sponsored health insurance program in the country. The FEHBP
currently covers about 8 million federal employees, retirees, and their dependents through
contracts with private insurance plans.10
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Domestic Partner Health Benefits and tax Policy
What Can Women’s Advocates Do?
The current tax treatment of domestic partner health benefits is unjust and makes it more difficult for
domestic partners to obtain job-based health coverage. Individuals living as unmarried couples are
two to three times more likely to have no health coverage than their married counterparts.11 As the
nation considers proposals to expand coverage to the swelling ranks of the uninsured, flawed policies
that make it more difficult and more expensive for millions of hardworking Americans to get employer
health benefits for their partners will only make the situation worse.
Women’s advocates can support federal and state legislation that would treat domestic partner health
benefits the same as spouse and family coverage.
Such legislation will prevent families headed by domestic partners from paying more in taxes than
their married counterparts. It will also eliminate a financial disincentive for employers to offer health
coverage to domestic partners, and therefore could increase the number of employers offering this
coverage.
For further reading, see:

M.V. Lee Badgett, Center for American Progress and The Williams Institute, Unequal Taxes on Equal
Benefits: The Taxation of Domestic Partner Benefits (2007), http://www.law.ucla.edu/williamsinstitute/
publications/UnequalTaxesOnEqualBenefits.pdf.
National Conference of State Legislatures, Same Sex Marriage, Civil Unions and Domestic Partnerships
(2008), http://www.ncsl.org/programs/cyf/samesex.htm.
Human Rights Campaign, Taxation of Domestic Partner Benefits, http://www.hrc.org/issues/workplace/
benefits/4820.htm (Last visited: June 29, 2008).
References
1
Tavia Simmons and Michael O’Connell, U.S. Census Bureau, Married-Couple and Unmarried-Partner Households: 2000 (Feb. 2003), http://www.census.
gov/prod/2003pubs/censr-5.pdf.
2
Julia E. Heck et al., Health Care Access Among Individuals in Same-Sex Relationships, American Journal of Public Health, 96(06): 1111-1118 (June 2006),
http://www.ajph.org/cgi/content/abstract/96/6/1111.
3
Human Rights Campaign, Relationship Recognition in the U.S. (June 2008), http://www.hrc.org/documents/Relationship_Recognition_Laws_Map.pdf.
4
Christine Nelson, National Conference of State Legislatures, Civil Unions and Domestic Partnership Statutes (Mar. 2008), http://www.ncsl.org/programs/
cyf/civilunions_domesticpartnership_statutes.htm.
5
On June 17, 2008, California began issuing marriage licenses to same-sex couples, though the California domestic partner registry remains in place.
California voters decided in November 2008, however, to amend the state constitution to prohibit marriage equality. At the time of writing, it is
uncertain how the state will treat the thousands of same-sex marriages already in effect. Meanwhile, several lawsuits have been filed to stop the
enforcement of the November 2008 prohibition.
6
Kaiser Family Foundation. Women’s Health Insurance Coverage (Dec. 2007), http://www.kff.org/womenshealth/upload/6000_06.pdf.
7
M.V. Lee Badgett, Center for American Progress and The Williams Institute, Unequal Taxes on Equal Benefits: The Taxation of Domestic Partner Benefits
(2007), http://www.law.ucla.edu/williamsinstitute/publications/UnequalTaxesOnEqualBenefits.pdf.
8
Id.
9
Human Rights Campaign Foundation, The State of the Workplace for Gay, Lesbian, Bisexual, and Transgender Americans (2006-2007), http://www.
civilrights.org/assets/pdfs/contentdisplay.pdf.
10 John E. Dicken, U.S. Government Accountability Office, Federal Employees Health Benefit Program: Premiums Continue to Rise, but Rate of Growth
Has Recently Slowed (May 18, 2007), http://searching.gao.gov/cs.html?charset=iso-8859-1&url=http%3A//www.gao.gov/new.items/d07873t.
pdf&qt=fehbp&col=&n=7&la=en.
11 Health Care Access Among Individuals in Same-Sex Relationships, supra note 2.
2008
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