Health benefits for domestic partners subject to federal tax, despite same-sex marriage laws


An employee who recently married her same-sex partner in New York has called to ask you whether her health flexible spending account (FSA) can be used to pay benefits for her wife. Can tax-favored benefits be provided to same-sex domestic partners from FSAs, health reimbursement arrangements (HRAs) or health savings accounts (HSAs)?


No. An employee's domestic partner does not qualify as the "spouse" of the employee for purposes of the Internal Revenue Code. This is based on the 1996 Defense of Marriage Act (DOMA), which provides that the word “marriage” means only a legal union between one man and one woman as husband and wife, and the word “spouse” refers only to a person of the opposite sex who is a husband or a wife.

Whether or not state laws apply to self-funded plans is immaterial for federal tax purposes. In companies that provide health care benefits to domestic partners (whether self-funded or insured), employees are taxed on the amount by which the fair market value of health coverage for the domestic partner exceeds the amount, if any, paid after-tax by the employee for that coverage. The fair market value may be determined on the basis of the amount that the individual would have to pay for the particular group coverage in an arm's-length transaction. There is no exemption from tax withholding on imputed income for domestic partner coverage.

President Barack Obama supports repeal of DOMA, but the law is still in effect for now. Whether or not a state recognizes same-sex marriages does not change the application of the federal tax code for health care purposes. DOMA would have to be repealed for same-sex marriage laws to affect taxation of group health benefits.

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