The Health Insurance Conundrum

Posted by Legal Q&A on Wednesday, May 16, 2012

I am planning to add my civil union partner to my employer-provided health insurance plan because my plan provides better coverage than that available through his employer. Is there anything that I should be aware of?

Under the Civil Union Act, employers are required to treat civil union partners in the same manner as married couples under “laws relating to insurance, health and pension benefits.” Therefore, if your employer offers dependant coverage to married couples, your employer should provide coverage for your civil union partner. This benefit will not be taxable under state law.

Because the federal Defense of Marriage Act (DOMA) prohibits recognition of civil unions and same-sex marriages for purposes of federal law, the federal government will not recognize your partner as your “spouse”. Therefore, there are tax consequences that you should be aware of under the Internal Revenue Code. The employer-paid portion of your health insurance coverage for your civil union partner is ordinary taxable income to you, subject to all federal payroll taxes for both the employee and the employer (Social Security, Medicare, etc.), unless your partner otherwise qualifies as a dependent.

The taxability of health insurance benefits may be confusing for both employees and employers. It is recommended that you speak to your employer regarding how they withhold taxes for your partner’s coverage, so that you do not encounter and unexpected tax bill when tax time rolls around. For example, if the “fair market value” of your partners’ share for your insurance premium is $6,000, assuming a 20% tax rate, you can expect an additional tax liability of $1,200.

To reimburse employees for the additional tax costs of same-sex partner coverage, some progressive companies have begun reimbursing their workers for the extra taxes they incur by “grossing-up” and employee’s wages to offset for the additional taxes that employee will pay as a result of providing health insurance benefits to an employee’s same-sex partner. Employers such as Discovery Communications, Facebook, and Google have adopted this practice.

If your employer offers a health insurance plan such as a flexible spending plans, health reimbursement accounts or health savings account, you should be aware that these plans are established pursuant to federal law. As such, these accounts cannot be used for a same-sex partner without incurring tax penalties unless your partner qualifies as a legal tax dependent.

Tax issues facing same-sex partners are complex and evolving. Same-sex couples should consult with tax advisers to obtain information specific to their own individual situations.

By: Rebecca Levin, Esq.

Rebecca Levin is an associate at Jerner & Palmer, P.C. (www.jplaw.com) , with offices in Marlton and Philadelphia. Her practice is concentrated on Child Support & Custody, Divorce & Dissolution and Domestic Violence & Protection From Abuse.  

Nothing contained in blog should be construed as legal advice. Because each person's situation is unique and because laws differ significantly from state to state, you should consult a lawyer in your area to obtain legal advice appropriate to your situation.
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