Tax Parity for Health Plan Beneficiaries Act
Although employer-provided health coverage for spouses is excluded from an employee’s gross income, domestic partner benefits are not. As a result, an employee who elects domestic partner coverage pays more income and payroll tax than a similarly-situated married employee. Moreover, because of this inequitable treatment, employers who offer benefits to domestic partners face the administrative burden of calculating taxes separately, and they also pay additional payroll taxes. With marriage for same-sex couples still barred in the majority of states, employer-provided domestic partner benefits remain an important way for employees to obtain critical health coverage for their families and the unfair taxation of those benefits can make it financially infeasible to do so.
What is the Tax Parity for Domestic Partner and Health Plan Beneficiaries Act/Tax Equity for Health Plan Beneficiaries Act?
The Tax Parity for Health Plan Beneficiaries Act (DP Tax) would end the taxation of benefits provided for domestic partners and other non-spouse beneficiaries under employers’ health plans. The bill would exclude the value of employer-provided health insurance for a domestic partner or other non-spouse beneficiary from an eligible employee’s income, as it does for benefits provided for a spouse or dependent. This legislation does not mandate that employers provide coverage to non-spouse beneficiaries, nor does it establish criteria for determining which beneficiaries qualify. This remains the province of the employers themselves. The bill simply eliminates the unfair taxation of benefits that employers choose to provide.
The bill would also make clear that domestic partners or non-dependents can be included in pre-tax cafeteria plan elections, permit Voluntary Employees’ Beneficiary Associations (VEBAs) to provide full benefits to domestic partners and non-dependents and extend Health Related Savings Accounts to cover domestic partners and other non-dependents. Finally, the bill would equalize the treatment of health coverage for domestic partners and other non-dependents for payroll tax purposes.
In June 2013, the U.S. Supreme Court struck down section 3 of the Defense of Marriage Act, which had defined marriage, for federal purposes, as the union of one man and one woman. As a result of the Court’s decision in United States v. Windsor and further clarified by an IRS revenue ruling, lawfully married same-sex couples will no longer be subject to the unfair taxation of the spousal health benefits they receive from their employer.
Growing Numbers of Top Employers Offer Equal Family Benefits
In growing numbers, employers across the country have made the business decision to provide health benefits to domestic partners of their employees. Sixty-two percent of Fortune 500 companies provide such coverage. This is more than a twelve-fold increase from 1995 and underscores a clear trend in the American workplace. Federal tax law has not kept up with the business community, however, and employers that offer such benefits, as well as the employees who receive them, are taxed inequitably.
Action is the 113th Congress?
DP Tax was introduced in the 113th Congress in the Senate by Sens. Chuck Schumer (D-NY) and Susan Collins (R-ME) on April 15, 2013, and in the House of Representatives by Reps. Jim McDermott (D-WA), Richard Hanna (R-NY), Earl Blumenauer (D-OR) and Ileana Ros-Lehtinen (R-FL) on June 25, 2013.
What is the Current Status of the Bill?
DP Tax is yet to be introduced in the 114th Congress.
More on DP Tax
- The Williams Institute & Center for American Progress: Unequal Taxes on Equal Benefits: The Taxation of Domestic Partner Benefits
- Business Coalition for Benefits Tax Equity
Last Updated: March 11, 2015