Domestic partnerships, civil unions, and health insurance: the basics

Health benefits for parties in a domestic partnership or civil union can be an effective recruiting tool. Domestic partnerships and civil unions historically provided coverage to same-sex couples. Yet health benefits for such parties can cost a company. Policies can extend coverage to unmarried parties who may not be romantically linked to one another. As of 2017, domestic partnerships exist in California, District of Columbia, Maine, Nevada, Oregon, Washington, and Wisconsin. Hawaii allows a similar relationship called “reciprocal beneficiaries.” Civil unions exist in Colorado, Hawaii, Illinois, and New Jersey. The difference between a domestic partnership and a civil union depends on how the state defines the terms.

Who can be in a domestic partnership or civil union?

Typically, a party in a domestic partnership or civil union is defined as an unmarried partner of an employee who has lived with the employee for at least a year, is not related by blood to the employee, is 18 or older, and is financially interdependent with the employee. Coverage for such a party extends to the partner’s children. Individuals can prove the existence of the domestic partnership or civil union with receipts and bills that indicate the employee and individual share financial responsibility, a filed domestic partnership or civil union agreement, proof of registration in their state’s registry of domestic partners or list of members in a civil union, and notarized documents such as affidavits from the partner and employee.

Differences between states

States have different understandings of domestic partnerships and civil unions. In Oregon, domestic partnerships are available only to same-sex couples. In California, domestic partnerships are available to same-sex couples and two persons who are members of the opposite sex. In California’s opposite-sex domestic partnership, at least one person must be over age 62 and eligible for Social Security old-age benefits.

Many states created the categories of domestic partnerships and civil unions because the state did not allow same-sex couples to marry. When the U.S. Supreme Court legalized gay marriage in Obergefell v. Hodges (2015), most states eliminated domestic partnerships and civil unions.

A number of employers extended health care coverage for non-employees in domestic partnerships and civil unions until cutoff dates in a period from 2016 to 2018. That coverage is close to expiring. Most employers that provided such coverage will now only provide coverage if the employee and his or her partner are married.

Ohio State University will end health care coverage of employee’s domestic partners in 2018. In June 2017, Wisconsin eliminated its domestic partner registry. This will end health insurance for domestic partners of state and local employees. Michigan is considering legislation to deny coverage to domestic partners of state employees. In Texas, a legal battle is gearing up for a refusal to deny even same-sex spouses of state and local employees from receiving health insurance.

What the SBEA's PEO Certification Does

The SBEA has tasked the IRS to create a voluntary PEO certification program. To qualify for certification, PEOs need to adhere to bonding and independent financial review requirements, and also observe ongoing record keeping responsibilities. In exchange, certified PEOs (CPEO) will have the authority to pay wages directly to the employees in their partnership, rather than going through the channel of their enterprise customers. The act has many benefits, not the least of which includes granting successor employer status for FICA and FUTA taxes, eliminating the requirement to re-set the taxable wage base when employers migrate off a certified PEO.

Ohio State University will end health care coverage of employee’s domestic partners in 2018. In June 2017, Wisconsin eliminated its domestic partner registry. This will end health insurance for domestic partners of state and local employees. Michigan is considering legislation to deny coverage to domestic partners of state employees. In Texas, a legal battle is gearing up for a refusal to deny even same-sex spouses of state and local employees from receiving health insurance.

Notes for employers

Employers should become familiar with the existing categories and criteria for their state if they want to request documentation of a domestic partnership or civil union. To avoid the appearance of bias, an employer that wants to request documentation of domestic partnerships and civil unions should also request documentation of marriages.

Employers are not required to provide health care coverage to parties in a domestic partnership or civil union unless their state’s insurance law necessitates this action. The California Family Code is one of the strictest laws in the country. California mandates that registered domestic partners have the same rights, protections, and benefits as spouses. Self-funded plans are not bound by state insurance requirements.

What about imputed income?

Imputed income is an IRS term for an employment benefit that should be considered income for the purpose of calculating taxes. Health care coverage for a party in a domestic partnership or civil union is imputed income. An employer must include imputed income in a W-2 form. (See: Employers, Domestic Partnerships, and the IRS).

An employee must pay federal taxes on imputed income when the employee’s partner is a tax dependent. A tax dependent is a person who is financially dependent on the employee (See § 152 of the Internal Revenue Code). A tax dependent is defined as an individual who shares the same principal residence as the employee, receives more than half of his or her support from the employee, is a citizen, national, or legal resident of the U.S. or a resident of Canada or Mexico, and is not be a qualifying child of the employee.

An employee must pay state and local taxes on this income when required to do so by state and local laws. Most state and local laws correspond to federal law. California does not tax employees for the value of employer-paid coverage for registered domestic partners.

Concerns for employees

Since states have different definitions for domestic partnerships and civil unions, a couple that relocates from one state to another must register with the appropriate agency in their new state of residence. When it comes to older persons, the U.S. Social Security Administration recognizes some domestic partnerships and civil unions to determine whether the employee’s partner is entitled to Social Security and Medicare benefits.

COBRA and Accounts

Accounts like Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs) are governed by the Internal Revenue Code. Only a non-employee who qualifies as a tax dependent can get health care expenses paid from such accounts.

A non-employee is covered under the Consolidated Omnibus Budget Reconciliation Act (COBRA) if that person was covered under a group health care plan at the time of the qualifying event. An employee can choose to cover his or her partner if the plan allows coverage for a domestic partner or member of a civil union. Many states, like California, have mini-COBRA laws that require non-employees in registered domestic partnerships or civil unions be covered.