Employees are taxed on firm's health benefits to domestic partners.

• Author: Bergner, Amy
• Position: Brief Article

The IRS has ruled in Letter Ruling 9603011 that health benefits offered by companies to employees' domestic partners will be taxable as wages to the employee if the partner is not considered a spouse under state law or as a dependent for other Federal tax purposes.

Under current law, employer-provided health benefits to spouses and dependents are not taxable to recipients. Premiums paid by employers for health insurance for employees, their spouses and dependents are also tax-exempt.

Currently, 13 states and the District of Columbia recognize common-law marriages involving opposite-sex couples. No state currently recognizes same-sex marriages or marriage-like arrangements in terms of attaining legal spouse status.

The case before the Service involved health benefits provided by a law firm to its employees' domestic partners. The law firm's health plan involved stop-loss insurance and required after-tax contributions by employees. According to the IRS, the amount that becomes taxable is the excess of the fair market value of the plan coverage provided by the firm over the amount paid by the employee--the value of the firm's contribution for health coverage. The portion of...