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Washington, DC - Legislation introduced today in the U.S. Senate by Senators Gordon Smith (R-OR), Maria Cantwell (D-WA), and Joseph Lieberman (ID-CT) would put domestic partners and spouses on the same page of the federal tax code when it comes to employer-provided health care benefits. Under current law, employers are subject to payroll tax, and employees to income and payroll taxes, for the value of covering a domestic partner.
"Our tax code should help all families - traditional and non-traditional," Senator Smith said. "Lower taxes help the family budget and this is a great opportunity to cut taxes."
"All families deserve to be treated equitably by the tax code," said Senator Cantwell. "It is long past time for Congress to provide tax fairness for all, and I look forward to working with the bipartisan co-sponsors of this bill to correct this inequity." "This is an issue of fundamental fairness," Senator Lieberman said. "That is why corporate America, the civil rights community, and legislators from all parties can come together to support this common-sense solution."
An increasing number of American employers provide health benefits to their employees' domestic partners, including over 50 percent of Fortune 500 companies. A flaw in the federal tax code keeps domestic partners from receiving the tax advantage as a spouse receiving the same health insurance. Furthermore, current law penalizes employers that provide domestic partner health benefits by increasing their taxes and adding significant administrative burdens. The Tax Equity for Domestic Partner and Health Plan Beneficiaries Act introduced by Senators Smith, Lieberman, and Cantwell, would eliminate the inequity. In addition, the new laws would encourage employers to increase health plan coverage by reducing administrative burdens.
Because Connecticut recognizes civil unions, this bill is especially essential to residents and businesses in the state. When employees receive employer-provided health benefits for their civil-union spouses, the benefit is tax-free for Connecticut purposes. But the benefit is currently subject to Federal payroll tax (for the employer and employee) and Federal income tax (for the employee). This creates a significant administrative challenge, with employers and employees treating benefits one way for federal purposes and then recording them another way for state purposes.
Remarking on this disparate treatment, Senator Lieberman said:
"This bill is especially important to Connecticut and the other states that accord appropriate recognition to same-sex relationships. Under Connecticut law, when employers extend health benefits to civil-union spouses, those benefits are exempt from Connecticut state taxes -- but are subject to federal income taxes. The disparate treatment creates an administrative headache for Connecticut employers and employees alike, and our bill would correct that."
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