How to lower taxes in same-sex relationships?
Imagine this scenario’¦
Joe and Fred live in the same city, work at the same company, do the same job, and have the same salary. They both have been with their significant others for the past 10 years. Joe happens to be married to Sally while Fred has been in a domestic partnership with Bob.
Their company offers healthcare benefits to married couple Joe & Sally. This same company, like the majority of Fortune 500 companies, offers domestic partnership healthcare benefits to Fred & Bob. However, come tax time, Fred’s W2 reports a much higher wage.
Why is this so? They both contribute equally to all of the other benefits that their company offers, yet Fred’s W2 is much higher. There are a lot of tax inequalities; this scenario just highlights one of them.
In light of the recent passage of Proposition 8 in California, and other states with similar laws and amendments, there has been a renewed interest in raising the profile of these inequalities. Unfortunately, it’s time we start looking at each of the federal marriage benefits individually.
Private organizations have long realized that in order to attract the most highly skilled and qualified workforce they must offer equal benefits to all employees. Many employers, including mine(thankfully), offer domestic healthcare benefits to the partners of their employers. However, the Federal Government does not recognize domestic partners or same-sex marriage. Domestic partnership healthcare is taxed as regular income, whereas straight couples have the right of marriage which allows companies to offer healthcare benefits in pre-tax dollars.
This inequality, in effect, causes a gay individual, like Fred in my example, to appear to make more money. This situation can often catapult gay employees into a higher tax bracket, which would cause them to pay even more taxes. How many gay individuals were denied the Federal Stimulus Package this past year because their taxes were erroneously too high? It is not right, nor equal, for a gay individual to have to pay higher tax for the same pay and not be allowed the same benefits offered by the Federal Government. During his campaign Barack Obama ran an advertisement citing that John McCain was going to tax healthcare benefits for the first time. Ironically, every time I heard this ad I was reminded that I already DO pay tax on the healthcare benefit of my partner.
In retrospect, if this inequality were to be reversed by the passage of The Tax Equity for Domestic Partner and Health Plan Beneficiaries Act every gay citizen currently receiving healthcare benefits for their partner would have their taxes lowered and would be able to keep more of their earned income. This inequality could also be equalized with the passage of a tax code reform package like the FairTax.
Together we can make a difference. Become an activist for this issue. When it passes, gay couples experiencing this scenario will get to keep more of their hard-earned income.
A group has been formed on Facebook in order to help dissolve this inequality and I encourage you to reach out to Congress to have them support The Tax Equity for Domestic Partner and Health Plan Beneficiaries Act.
Phil: Yes, it’s true that Federal tax law has not kept up with corporate changes in the area of health care benefits. Dawn tried to get creative in how she dealt with being taxed as she explains in this post.
Nina, That was actually something we discussed last night as I was preparing for my post. We wondered if we should buy a plan outside of my company’s insurance. We would have to buy the plan with post tax dollars and at the end of the day, I also (like Dawn) don’t think it would make sense.
It’s too bad we even have to deal with issues like this.
Great article, Phil. Another reason why we need equality at the federal level, and not just marriage/dp’s at the state and local level.
If one of you is self-employed, hire your partner. If you’re self-employed your business generally permeates all of your life. I run a technology corporation and my spouse does some IT consulting for me. You of course have to make money in your corporation and your spouse actually has to do some work for you, but this allows you to essentially write off many things you do together, such as eat out, computers, phones, internet service, etc.
Thank you so much for this! I had no idea.
I just enrolled my partner in my companies healthcare benefits… I didn’t realize there would be stringes attached. This is totally unfair!!! What an eye opener. I will forward this article to everyone I know.
Thanks again!
Tami