It's tax time again and I tend to get questions this time of year about reporting of benefits. Health plans that provide coverage to same-sex couples and domestic partners require some special consideration for tax purposes so let's review some of the key issues.
The first is verification of status. Some employers voice to me concerns over asking for marital status for fear that requiring enrollees to identify potential same-sex partners is tantamount to discrimination. But it is OK to ask (and in many instances, you are required to). You just can't treat enrollees differently once they are determined to be eligible for coverage. As more states define their respective positions with regard to same-sex marriage or domestic partnerships, plan sponsors are under specific tax rules that require that benefits to these spouses and partners be properly taxed at a federal and state level. So the employer must, as a function of tax law, inquire about status and an employee who enrolls a same-sex spouse in a state that recognizes same sex marriage can be asked to differentiate between "marriage" and "same-sex marriage" for plan enrollment and tax purposes.
However, a plan sponsor cannot require different verifications standards. If someone enrolls their same-sex married partner, they cannot be required to produce a marriage certificate unless you are prepared to require all married couples to produce a certificate. So it is not the asking that creates the issue, it is the verification process.
Domestic partners can create a slightly different scenario in that some states recognize both same-sex and opposite-sex domestic partnerships. Moreover, some plans actually provide for coverage for unmarried opposite sex partners with verification of some type of long term arrangement. Plans seeking verification of domestic partnership status would need to require all domestic partners to verify that status, regardless of gender, but making that a requirement for domestic partners might also trigger an obligation to verify marital status for married partners as well. Remember, marital status can be a protected class. Essentially plans have to balance the obligation to verify eligibility and properly report income against the obligation to treat participants equally, regardless of marital status and sexual orientation.
A lot of plans simply require the employee to sign an affirmation of accuracy at the time of enrollment confirming they are making true statements. This might eliminate the need for actual verification and certainly there can be stated penalties for fraud. How a plan verifies eligibility is a process the plan administrator has to develop and administer so there is no automatic answer for every situation. But when it comes to enrollment, plans have to ask so that benefits are treated properly for tax purposes. Just make sure you ask properly.
Keith R. McMurdy, Partner at Fox Rothschild in the New York office, can be reached at 212-878-7919 or at kmcmurdy@foxrothschild.com.
