Williams Institute and the Center for American Progress Release Joint Report on the Unequal Taxation of Domestic Partner Benefits

Domestic Partners Pay $1,069 More Each Year in Taxes Related to Health Insurance Benefits Alone

Losses to Employees and Employers Total $235 Million

(Los Angeles, CA) - As the national debate around marriage equality for same-sex couples continues to increase the level of public awareness around the legal and financial inequities facing unmarried couples and domestic partners, a recent joint study from The Williams Institute and the Center for American Progress sheds further light on the depth and pervasiveness of unequal tax burdens. The report specifically analyzes unequal taxation practices on family and partner health insurance benefits. The findings show that employees with partners now pay on average $1,069 per year more in taxes than would a married employee with the same employer-provided coverage.

To read the full report, click here:
http://www.law.ucla.edu/williamsinstitute/publications/UnequalTaxesOnEqualBe
nefits.pdf

Employer-provided health insurance is the backbone of health coverage for American families. Most people who have health insurance get it through their own employer or a family member's employer. Public policy encourages employers to provide health insurance by exempting that form of compensation from taxation. As a result, married workers who get family health insurance benefits get a double benefit-they get health insurance coverage for their spouses and children and are not taxed on the value of that coverage.

In sharp contrast, workers who have an unmarried domestic partner are doubly
burdened: Their employers typically do not provide coverage for domestic partners; and even when partners are covered, the partner's coverage is taxed as income to the employee. Employers who cover domestic partners are also penalized under current law, since employer payroll tax responsibilities increase along with employees' income and Social Security taxes.

As a result, the taxation of domestic partner health care benefits sets up a two-tiered tax policy that costs many American families and their employers millions of dollars each year. This report estimates the financial impact of this extra tax on employees and employers.

In this report, we detail how employees with partners now pay on average
$1,069 per year more in taxes than would a married employee with the same coverage. Collectively, unmarried couples lose $178 million per year to additional taxes. U.S. employers also pay a total of $57 million per year in additional payroll taxes because of this unequal tax treatment. Because the number of unmarried couples is growing, over time this unfair treatment will affect millions of families.

To remedy this situation, we recommend that Congress enact legislation now under consideration that would eliminate this federal tax on equal benefits.
The legislation would exclude the value of domestic partner benefits, or DPBs, from income subject to taxation just as the value of employee and spousal benefits is excluded.

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The Williams Institute advances sexual orientation law and public policy through rigorous, independent research and scholarship, and disseminates it to judges, legislators, policymakers, media and the public. A national think tank at UCLA Law, the Williams Institute produces high quality research with real-world relevance.