Taxes are Taxing, Insurance is Taxing…

Q. What is the law regarding employer paid medical/dental premiums for opposite sex partners in a domestic partnership? We pay 80% of one dependent premium for our employees. For same sex domestic partnerships we add the 80 % amount as income for tax purposes each pay period.  We would do the same for opposite sex domestic partnerships?

A. This whole area of tax becomes very confusing when employers are in multiple states.  There are only two states that recognize same-sex marriage in the first place; Massachusetts and Connecticut.  Other states do not have official laws on the books, but have legal decisions recognizing the practice.  Most states do not recognize this status anyway, neither does the IRS.  Therefore, for federal tax purposes, any medical insurance paid by the employer on behalf of the employee’s domestic partner becomes taxable income.  For most states, the same thing applies.  Therefore, what you are describing is correct.  In the case of opposite sex domestic partnerships, the premium paid for the non-employee non-spouse is again taxable income to the employee.  The only deduction allowed in this case would be for spouses and dependent children.

Because this practice can be considered discriminatory, many instructors in the courses I have taken on this topic suggest that the employer who wishes to pay the medical insurance premium on behalf of the employee should really focus on the employee him/herself.   Whether the employee has a domestic partnership, civil union, is married or just plain single, the employer is not even giving the appearance of discrimination if it only covers the employee portion.

Keep in mind also that if this is an employer group health plan, premiums could not be deducted on a pre-tax basis in those states where domestic partnerships/civil unions are not recognized.  The deduction for health insurance would need to be taken on an after tax basis only.