Congressional Bill Would Equalize Tax Treatment for Domestic Partners in Health Plans

Rep. Jim McDermott, D-Wash., has introduced bipartisan legislation that aims to bring parity and equal treatment under the Tax Code for health plan beneficiaries who are domestic partners and non-spouse dependents.

Under the existing tax laws, companies and their employees need to pay higher federal taxes for health care benefits that are provided to domestic partners and non-spouse dependents. McDermott’s bill, which he introduced Thursday evening, would correct this tax disparity.

“It’s wrong to punish American companies for doing the right thing," said McDermott, who originally introduced the bill in 2001. "More than 80 percent of America’s 100 most successful companies are recognizing employee diversity and providing more inclusive health plans, and they shouldn’t be penalized for this. As things stand, a company has to pay higher payroll taxes and the employee is hit with a huge tax penalty that their married co-workers are exempt from. This legislation would not only end unfair tax treatment of employees, but also help keep American businesses competitive.”

Under current tax law, domestic partners and non-spouse dependents who receive health benefits have to pay an average of $2,000 more in federal taxes annually. McDermott’s bill, “The Tax Parity for Health Plan Beneficiaries Act” (H.R. 2088), would correct this disparate tax treatment. The legislation was introduced Thursday by a bipartisan group of legislators—two Republicans and two Democrats—and has garnered tremendous support in previous Congresses.

A coalition of 77 American businesses, which includes Alaska Airlines, Microsoft, Boeing and others, sent a letter in support of McDermott’s legislation, which states, “Companies like ours in increasing numbers have made the business decision to provide health benefits to such beneficiaries, such as the domestic partners, adult children, certain grandchildren, etc. of our employees…[This coverage] helps corporations attract and retain qualified employees and provides employees with health security on an equitable basis. Unfortunately, federal tax law has not kept pace with businesses in this area, and....imposes a significant financial hardship on families and is simply unfair.”

Similar legislation is currently being written by a bipartisan group of Senators. In the previous Congress, a companion bill to McDermott’s legislation was introduced in the Senate with bipartisan support.

“In the last Congress, this measure was almost approved as part of the health care reform law,” McDermott said in a statement. “I am confident that with the support from House and Senate members on both sides of the aisle, as well as support from human rights groups and the business community, we’ll get it enacted this time around.”