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Potentially One Less Tax Penalty for Gay Couples

By Jennifer Saranow Schultz - The New York Times

Monday, November 09, 2009

Potentially One Less Tax Penalty for Gay Couples

The health care bill passed by the House of Representatives over the weekend eliminates a tax penalty for same-sex couples who receive health benefits from employers, but whether the final legislation will include the provision is another story.

Currently, health benefits provided by employers to the domestic partners of their employees are treated as part of an employee’s gross taxable income, and the employer may owe payroll taxes on them. In contrast, employer-provided health coverage for spouses of different sexes is excluded from an employee’s gross income and employers don’t owe payroll taxes on them, one area where it costs more if you’re gay.

The House’s legislation, which includes language from a bill titled the Tax Equity for Health Plan Beneficiaries Act, makes health insurance benefits for domestic partners (and adult children) tax-free if an employer offers them, excluding them from an employee’s gross income and bringing their taxation in line with that of health benefits provided to the spouse or dependents of an employee married to a person of the opposite sex.

This also means that whenever today there is a way for a straight married couple to finance their health benefits on a pretax basis, an employee paying for the benefits of a domestic partner would be able to do the same pretax financing, according to the Human Rights Campaign, a gay rights advocacy group.

Still, the tax treatment change isn’t a done deal unless the Senate agrees to it. While there is a freestanding bill in the Senate similar to the Tax Equity for Health Plan Beneficiaries Act, the Senate health care legislation currently does not include a similar provision. And it’s unlikely that the final version, expected to be unveiled later this week or next week, will do so, said Allison Herwitt, legislative director for the Human Rights Campaign.

She said her organization was going to focus on making sure that the House tax penalty elimination language remains in the combined legislation when the Senate and House bills go to conference.

“We’re optimistic,” she said. “We have support from strong allies in the House, the Senate and the business community.” The provision will cost the government $4 billion in tax revenue over 10 years, she estimated. And if Congress ultimately does not pass health care legislation, she said, her organization will focus on House and Senate passage of the independent bills addressing the issue.

How much have you paid in taxes over the years for a partner’s health insurance?

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