Saturday, June 4, 2011

Bill Would End Taxing Benefits for Domestic Partners


A bipartisan group of House lawmakers introduced a bill that would have health-care benefits for domestic partners treated in the same way as those for a married couple.
Legislation introduced late Thursday by Democratic Reps. Jim McDermott of Washington and Earl Blumenauer of Oregon, along with New York Republican Reps. Richard Hanna and Nan Hayworth, would stop health-care benefits from being considered income for tax purposes. As a result, a person with a domestic partner enrolled in his or her work-sponsored health-care plan no longer would incur a tax liability for those benefits.
"It's wrong to punish American companies for doing the right thing," Mr. McDermott said Friday. "As things stand, a company has to pay higher payroll taxes and the employee is hit with a huge tax penalty that their married co-workers are exempt from."
Under current law, someone whose spouse is on his or her employer-provided health-care plan doesn't pay income taxes on the value of the health-care benefits, while someone with a domestic partner does. On average, an employee with a domestic partner ends up paying an additional $1,700 each year in federal taxes on health-care benefits, according to think tank Third Way, citing a 2007 study conducted by the Williams Institute.
For example, a man with a salary of $50,000 whose wife is on his office health-care plan and receives $10,000 worth of health-care benefits still pays income taxes based only on that $50,000. Meanwhile, someone in a domestic partnership in the same situation would have to pay federal taxes on the full $60,000. A company then also owes more payroll taxes on the higher sum.
Mr. McDermott originally introduced the bill in 2001, but momentum has built since then as more companies have started allowing employees to add domestic partners to their health-care plans. On Tuesday, a coalition of 77 companies and trade associations—including Alcoa Inc., Microsoft Corp., Intel Corp., AT&T Inc. and Citigroup Inc.—sent the lawmaker a letter supporting the bill.
"Companies like ours in increasing numbers have made the business decision to provide health benefits to such beneficiaries," stated the letter from the Business Coalition for Benefits Tax Equity. "Unfortunately, federal tax law has not kept pace with corporate change in this area, and employers that offer such benefits and employees who receive them are taxed inequitably."
The bill would also provide equal tax treatment for health benefits given to nonspouse dependents, which can include adult children or grandchildren. A similar one is being written by a bipartisan group in the Senate.