Americans In Domestic Partnerships Face Unequal Taxation On Employer-Sponsored Health Benefits

Our guest blogger is Josh Rosenthal, Special Assistant to the External Affairs Department at the Center for American Progress Action Fund.

On Tuesday, Sen. Max Baucus (D-MT) reiterated his support for taxing employer-sponsored health benefits as a means for financing health care reform. Currently, any health insurance that an employer provides to employees, their spouses, and their children is exempt from income and payroll taxes. Sen. Baucus is proposing to limit that exemption, based on the value of the benefits, income level, or a combination of the two, while not getting rid of it entirely.

But more than 210,000 people are already being fully taxed on their employer-sponsored health insurance benefits. Why? If you adopt employer health benefits for a domestic partner or adult child, those benefits are fully taxed as income. In fact, since the Defense of Marriage Act prevents the federal government from recognizing same-sex marriages, many married couples in Massachusetts, California, Iowa, and other states still have to pay full federal taxes on the health insurance for their spouses. According to a 2007 study by CAP and the Williams Institute, employees with partners are paying an average of $1,069 every year in taxes on their health benefits, with their employers chipping in a total of $57 million each year.

These extra costs are discouraging employers, and especially small businesses from offering domestic partner benefits. And in today’s difficult economy, having to pay an extra thousand dollars can discourage employees from covering their partners. In order to fix this problem, Rep. Jim McDermott (D-WA), Rep. Ileana Ros-Lehtinen (R-FL), and Sen. Chuck Schumer (D-NY) introduced the Tax Equity for Health Plan Beneficiaries Act (S. 1153/H.R. 2625), which would treat all health benefits provided by an employer equally, whether extended to a domestic partner or a spouse.


The tax exclusion of employer-sponsored insurance is an important element of the American health care system. However Congress decides to reform the exclusion, it should include tax equity provisions, so the exclusion applies equally to all families.