The unintended consequence of providing employee benefits for domestic partners

Legislation has recently been reintroduced in both the House and Senate that would allow employers to provide health insurance for domestic partners (and other nonspouse beneficiaries) without adversely affecting the employee for income tax purposes. Until legislation is passed, domestic partner benefits could, however, be considered imputed income to your employees. Generally, employee benefits are taxed to the employee under Internal Revenue Code (Code) Section 61(a)(l), unless excluded under the Code. The Code excludes employer contributions of health insurance premiums for an employee or the employee's spouse or legal dependents. Many states conform to the provisions of the Code in determining whether employer contributions towards health insurance premiums for domestic partners are taxable to the employee. The advantages of providing domestic partner benefits can be significant. Employers that are interested in providing these benefits should work with experienced counsel and their payroll administrators to ensure that the tax issues are handled properly and employees are given adequate information.