Not long ago, offering domestic partnership health benefits was a way for employers to equalize benefits for employees in same- and opposite-sex partnerships. But landmark legislation and new trends have changed things.
After the Supreme Court’s 2015 Obergefell v. Hodges ruling legalized same-sex marriage nationwide, the percentage of employers offering health benefits to domestic partners declined. If a spouse is now a spouse, the thinking goes, there’s no longer a need to offer specific benefits to ensure that employees with same-sex partners have access to the same level of benefits as employees with opposite-sex partners.
But employers are wise to think through all of the considerations before dismissing benefits like domestic partner health insurance. Offering benefits to same- and opposite-sex domestic partners allows your organization to cast a wider, more inclusive net for attracting and retaining a highly skilled workforce, promoting diversity and setting your organization apart from the competition. If you’re deciding whether to add domestic partner benefits to your company’s offerings, here are three important factors to keep in mind.
1. Your State May Have Its Own Requirements for Employers
There’s no federal law requiring employers to offer benefits to spouses or domestic partners. However, most offer benefits to spouses anyway. Past the federal level, some states have stepped in with their own stipulations, requiring state-regulated health plans to extend benefits to domestic partners if benefits are offered to spouses.
What constitutes a domestic partnership? Rules on this vary from state to state, too, but in states or cities that don’t have written definitions or official domestic partner registries, employers that offer domestic partner benefits should clearly define what constitutes a domestic partnership. This helps ensure that there’s no ambiguity in terms of who is eligible for coverage and that coverage is offered consistently to all eligible employees.
2. Your Employees Will Need to Keep Up With IRS Regulations
Health insurance benefits are generally not subject to taxes, but that’s often not the case when it comes to coverage for domestic partners. Unless the domestic partner is actually the employee’s tax dependent, the fair market value of the domestic partner’s coverage is taxable and has to be added on the employee’s W-2 as part of their total taxable compensation.
In addition, unless the domestic partner is the employee’s tax dependent, the domestic partner’s medical expenses cannot be covered using the employee’s health savings account (HSA), health reimbursement arrangement (HRA) or flexible spending account (FSA). That’s according to IRS rules, which allow those accounts to be used for spouses and tax dependents but not for domestic partners. So if an employer offers a tax-advantaged account in conjunction with a health plan and allows domestic partners to be covered under the health plan, it’s important to help employees understand how the funds in the tax-advantaged account can and cannot be used.
3. Tracking the Trends Could Give You a Competitive Edge
Benefits packages are more than just a nice add-on for employees — for many people, they’re as important (or even more important) than the salary they’ll make at a company. In a recent poll, 80 percent of people said they’d take a better benefits package over an improved salary.
The high stakes surrounding benefits encourage most employers to go beyond the bare minimum when it comes to spouses: Even though the Affordable Care Act doesn’t have any requirements concerning spousal or domestic partner coverage, most employers that offer health coverage do extend benefits to the spouses of eligible employees. Less than half offer domestic partner benefits.
So to have a competitive benefits package, it may be wise to consider offering benefits to domestic partners. The cost to do so is typically minimal, as uptake of domestic partner benefits tends to be very low on the whole.
There’s no clear-cut answer in terms of whether an organization should offer health benefits to domestic partners, and employers considering this benefit should discuss the tax implications with their accountant. But having the coverage available as an option could end up being the factor that helps an organization recruit a diverse staff of top talent, regardless of their domestic situation.
Stay up to date on the latest health care regulations and trends for your small business: Subscribe to our monthly newsletter.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.