A growing number of U.S. companies provide benefits, such as health insurance coverage, for their employees’ domestic partners.
Businesses may decide to offer domestic partner benefits to attract and retain talented employees or because they desire to provide equal benefits regardless of marital status or sexual orientation.
At the federal level, there are no laws that require or prohibit domestic partner benefits in the workplace. However, the federal Defense of Marriage Act of 1996 (DOMA) impacted the administration of employer-provided domestic partner benefits. Also, a number of states have enacted same-sex marriage, civil union and domestic partnership laws that affect domestic partner benefits.
On June 26, 2013, the U.S. Supreme Court struck down the part of DOMA that limits marriage to opposite-sex unions for purposes of federal law. This Employment Law Summary provides an overview of the federal and state domestic partner laws affecting Indiana employers and outlines implementation steps for employers to consider if they decide to offer domestic partner benefits.
DEFENSE OF MARRIAGE ACT (DOMA)
The U.S. Congress enacted DOMA in 1996 in response to concerns about state legalization of same-sex marriage. DOMA banned federal recognition of same-sex marriage by solely defining “marriage” as the legal union between one man and one woman as husband and wife.Since its enactment, DOMA has been the subject of both political and legal controversy. In February 2011, the Obama Administration announced its position that DOMA’s definition of “marriage” is unconstitutional and directed the Justice Department to stop defending the law in federal court. However, Republican leaders in the House of Representatives intervened to defend DOMA in legal challenges.
On June 26, 2013, the U.S. Supreme Court struck down a key part of DOMA by ruling that the law’s definition of marriage violates the U.S. Constitution’s guarantee of equal protection. As a result of the Supreme Court’s ruling, legally married same-sex couples are entitled to the same benefits and protections under federal law as opposite-sex married couples. The Court’s ruling did not establish a constitutional right to same-sex marriage. This means that state bans on same-sex marriage continue to be valid.DOMA also allows states to choose whether to recognize same-sex marriages performed in other states. The Supreme Court did not address this portion of the law, which means that states can still refuse to recognize same-sex marriages that are legal in other states. This issue may be addressed in future court cases.
Effect of Supreme Court Decision on Employee Benefits
DOMA has not prohibited employers from providing health benefits to their employees’ domestic partners or same-sex spouses. However, the administration and taxation of these benefits can be complex. In states that recognize same-sex marriage, DOMA created two different systems for same-sex couples. Under state law, these couples were treated as married but, under federal law, they were not. Due to the Supreme Court’s DOMA ruling, employers in jurisdictions that allow or recognize same-sex marriage must treat employees’ same-sex and opposite-sex spouses equally for purposes of federal employee benefit laws.
For example, in states that permit or recognize same-sex marriages, the Court’s decision makes the following changes with respect to employee benefits:
- An employer will no longer need to impute additional income to an employee who covers his or her same-sex spouse as a dependent under the employer’s health plan.
- An eligible employee may pay for a same-sex spouse’s health coverage on a pre-tax basis through a cafeteria (or section 125) plan in the same way as an employee with an opposite-sex spouse.
- An eligible employee may receive tax-free reimbursements for expenses of his or her same-sex spouse through a health flexible spending account (FSA), health reimbursement account (HRA) or health savings account (HSA).
- A same-sex spouse is considered a spouse or family member for purposes of taking leave under the federal Family and Medical Leave Act (FMLA).
- Special enrollment rights under HIPAA are triggered when an employee acquires a same-sex spouse.
- Same-sex spouses may qualify as a “spouse” for COBRA purposes and can have their own COBRA election rights.
Domestic Partnerships and Civil Unions
The Supreme Court’s DOMA decision applies only to same-sex marriages that are valid under state law. It does not affect same-sex couples in civil unions or domestic partnerships. These couples will generally remain ineligible for the federal benefits and protections provided to spouses.For these couples, domestic partner benefits are non-taxable only if the domestic partner qualifies as a dependent under the Internal Revenue Code’s definition of “qualifying relative.” To qualify as a dependent under this definition, the domestic partner must generally:
- Have the same primary address as the employee/taxpayer for the year;
- Be a member of the employee/taxpayer’s household;
- Receive more than half of his or her support for the year from the employee/taxpayer;
- Not be anyone’s “qualifying child” for tax purposes; and
- Be a citizen or national of the U.S., or a resident of the U.S. or a country contiguous to the U.S.
If a domestic partner does not qualify as a tax dependent of the employee, employers are required to report and withhold taxes on the value of employer-provided health coverage for the domestic partner. In addition, an employee cannot pay for a domestic partner’s coverage on a pre-tax basis through a cafeteria (or section 125) plan if the partner is not the employee’s tax dependent.It is common for employers to “gross up” an employee’s salary to offset the tax consequences of domestic partner benefits (that is, reimburse employees for the extra taxes they are required to pay on the value of domestic partner benefits).
The majority of states have laws or constitutional amendments barring same-sex marriages. However, a growing number of states have legalized same-sex marriage, while others recognize same-sex marriages performed in other states and nations. In addition, a small number of states have passed laws granting spousal-like rights to unmarried couples through civil unions and domestic partnerships.Indiana law states that a marriage between two people of the same gender is invalid. Likewise, Indiana does not recognize same-sex marriages that have been conducted and honored in other states. The only marital union that is legal in Indiana is between a man and a woman.
Despite Indiana’s ban on same-sex marriage, private employers are free to decide whether or not to provide domestic partner benefits for their employees. If an employer decides to provide domestic partner benefits, the following implementation steps should be considered:
- Review current benefits being offered to married employees to determine which benefits should be provided to employees with domestic partners, such as health plan coverage, family leave, relocation assistance, tuition assistance, employee discounts, etc.;
- If the health plan is insured, confirm that the insurance carrier offers domestic partner coverage and will make any necessary plan amendments;
- Evaluate possible eligibility limits for domestic partner benefits, including whether coverage should be provided for opposite-sex partners and same-sex partners, and whether the children of domestic partners should be eligible for coverage;
- Consider what eligibility documentation will be required of domestic partners (or their children), such as a written statement describing the relationship;
- Consult with tax advisors and payroll vendors regarding the tax implications of providing domestic partner benefits, and determine whether to “gross up” employee pay to offset the tax consequences of domestic partner benefits; and
- Communicate benefit changes to employees on a periodic basis, including changes for domestic partner benefits and tax implications.
Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.