We got a bunch of questions about how healthcare reform might affect the taxation of health insurance benefits for domestic partners, and unfortunately the answer is, it doesn’t. Neither the recently-passed healthcare reform nor the recent order signed by President Obama widening the medical rights of same-sex domestic partners changes the way that health insurance benefits for domestic partners are currently taxed.
Currently, married couples do not pay tax on the value of the health insurance benefits that they receive as part of an employee’s compensation. However, because the federal government does not recognize same-sex marriage or domestic partnerships, employees in domestic partnerships must pay taxes (both income taxes and payroll taxes) on the value of the health insurance benefits provided by the employer to cover the domestic partner. In addition, because an employee in a domestic partnership cannot use pre-tax dollars to pay for a domestic partner’s healthcare coverage, he or she also cannot enjoy the full benefits of a Flexible Spending Account, Health Reimbursement Account or Health Savings Account. The only exception to these tax requirements is if a domestic partner qualifies as a dependent under IRS requirements.
Although some versions of the healthcare reform bill included provisions changing the taxation of health insurance benefits for domestic partners, those provisions were not ultimately approved. In addition, although the order signed by President Obama widening the medical rights of same-sex domestic partners is anticipated to provide same-sex domestic partners with hospital visitation privileges on par with that of heterosexual couples, it does not address the taxation issue either.
For a more detailed discussion of the taxation of health insurance benefits for domestic partners, visit us at MyHealthCafe.com:
