Schumer, Collins Introduce Bill to End Unjust Tax Treatment of Domestic Partners' Health Benefits

Press Release

Under Current Law, Companies Can Offer Health Benefits To Employees' Spouses Tax-Free, But Coverage For Domestic and Same-Sex Partners Is Treated as Taxable Income

Unfair Policy Results In Thousands Of Dollars In Extra Tax Burden For Both Companies and Employees

More Than 75 Major U.S. Employers Have Endorsed Schumer-Collins Bill

U.S. Senators Charles Schumer (D-NY) and Susan Collins (R-ME) on Thursday introduced legislation that would end, once and for all, the unfair taxation of health benefits provided to domestic partners. Under current law, when a company provides health benefits to an employee's spouse and dependants, the value of the entire premium is considered a tax-free fringe benefit. But if the company elects to offer a health plan that covers a domestic partner, the partner's portion of the insurance premium is treated as taxable income. The Schumer-Collins bill would fix this provision in the tax code so that all same-sex and opposite-sex domestic partners who are covered by their partner's employer-based health plan are no longer treated differently.

"This is a question of fundamental fairness and it is long past time that we end this little-known, but burdensome tax penalty," Senator Schumer said. "Our legislation is a common-sense fix that will spare both workers and their employers from this unjust tax on health benefits."

"In order to remain competitive and keep and attract good employees, more than half of the largest and most successful companies in our country currently provide health coverage to their employees' domestic partners," said Senator Collins. "Our legislation would simply prevent these benefits from being unfairly taxed."

Every year, more and more employers across the country make the business decision to voluntarily provide health benefits to the domestic partners of their employees. As of March 2011, 291 of the Fortune 500 companies, or 58%, were providing such coverage. This is a more than thirteen-fold increase since 1995. Federal tax law has not kept up with corporate changes in this area, however, and the employees who receive these benefits are taxed inequitably. When a gay or lesbian worker calculates his or her payroll tax liability, the value of the coverage provided to their domestic partner is included in their wage base. That serves to increase both the employee's and employer's payroll tax obligations.

An employee of median income level who receives employer-provided major medical coverage of average cost for himself and a domestic partner faces an annual tax bill of $4,939 in income and payroll taxes. That is $1,729 (54%) more than that paid by a similarly situated co-worker with spousal coverage.

The legislation introduced Thursday does not compel any businesses that don't already offer health coverage to domestic partners to do so. It simply says that for those companies that do offer these benefits, neither they nor their employees should face any tax liability.

The Schumer-Collins legislation, dubbed the "Tax Parity for Health Plan Beneficiaries Act of 2011," is co-sponsored in the Senate by Senators Sheldon Whitehouse (D-RI), Jeff Bingaman (D-NM), Sherrod Brown (D-OH), Maria Cantwell (D-WA), Patty Murray (D-WA), Richard Blumenthal (D-CT), Kirsten Gillibrand (D-NY), Jeff Merkley (D-OR), Frank Lautenberg (D-NJ), Ron Wyden (D-OR), and Al Franken (D-MN). In the House, a companion bill has been introduced by Reps. Jim McDermott (D-WA), Richard Hanna (R-NY), Earl Blumenauer (D-OR), and Nan Hayworth (R-NY).

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