In addition to not having access to COBRA benefits, same-sex couples in domestic partnerships are also subject to different tax consequences than their married counterparts.
by Sarah Sipek
July 2, 2015
It’s official. All Americans have the right to marry.
In a 5-4 decision on June 26, the Supreme Court ruled that the constitution guarantees the right to same-sex marriage. Chief Justice Anthony Kennedy wrote the majority opinion, in which he exalted marriage as a “profound union” in which all men and women have the right to partake.
“It would misunderstand these men and women to say they disrespect the idea of marriage,” Kennedy wrote. “Their plea is that they do respect it, respect it so deeply that they seek to find its fulfillment for themselves. Their hope is not to be condemned to live in loneliness, excluded from one of civilization’s oldest institutions. They ask for equal dignity in the eyes of the law. The Constitution grants them that right.”
While Kennedy chose to celebrate what the ruling symbolizes, Chief Justice John Roberts, who wrote the dissenting opinion, focused on the more tangible gains, namely benefits.
Prior to the ruling, same-sex couples in states where marriage was not legal did not have access to the full spousal benefits afforded to heterosexual couples. Now that this has changed, same-sex employees need to understand the health care implications of choosing to legally define their relationship as either a domestic partnership or a marriage.
“People can still enter into domestic partnerships,” said Summer Conley, a partner in the employee benefits group of law firm Drinker Biddle & Reath. “Because of the negative tax consequences, I would expect that same-sex couples would me more interested in getting married so that they get the beneficial tax consequences for the coverage.”
Employers must provide all spouses, regardless of sexual preference, the same benefits coverage, Conley said. However, in states where same-sex marriage was previously not recognized, employers also had the option to offer domestic partnership benefits, though federal law prevented Consolidated Omnibus Budget Reconciliation Act benefits from being as extensive.
COBRA goes into effect when an employee temporarily loses access to health care coverage because of voluntary or involuntary job loss. Under that legislation same-sex domestic partners are not “qualified beneficiaries” to whom employers are required to offer continuation of health care benefits under federal COBRA regulations, Conley said.
“If the employee was terminated and was entitled to elect COBRA under his or her health plan, their domestic partner would not be offered COBRA rights, but their spouse would,” Conley said.
In addition to not having access to COBRA benefits, same-sex couples in domestic partnerships are also subject to different tax consequences than their married counterparts. Married couples are able to cover their spouses without including the health care coverage in their income.
“If you include a domestic partner who doesn’t otherwise meet tax dependency requirements, then, as a general rule, you have to impute the value of the coverage for that domestic partner into the employee’s income for federal purposes,” Conley said.
The Human Rights Campaign, the largest civil rights organization working to achieve equality for lesbian, gay, bisexual and transgender Americans, puts it in clearer terms: Employers who offer to cover domestic partners must calculate the estimated value of the health care coverage and credit that amount to the employee’s imputed income.
According to a report from think tank the Williams Institute and the Center for American Progress, this can result in those people in domestic partnerships paying an average of $1,069 more in taxes each year.
Even though it is financially beneficial for same-sex couples to get married, employers should not eliminate domestic partnership benefits, Conley said. To the extent that the law allows, employers should strive to make spousal and domestic partnership benefits as similar as possible, she added.
“If an employer is offering domestic partnership benefits, I’ve typically found that they are the same as spousal benefits to the extent they can legally make them the same,” Conley said.
One of the most important things employers should be aware of when offering these benefits is making sure eligibility requirements are the same across the board, Conley said. If an employer requires an employee in a same-sex domestic partnership to document their relationship, they should require the same of heterosexual couples.
This article was originally published in Diversity Executive's sister publication, Workforce.
