When the Supreme Court legalized same-sex marriages back in 2015, the IRS clarified that two people are legally married under federal law when they also legally married under their state’s law. Because of this declaration, the IRS treats same-sex and opposite-sex marriages the same way. Domestic partnerships, however, are different, and are not considered “marriages” under federal law. Because a domestic partnership is not considered a “marriage,” we are often asked if an employer must provide benefits for same-sex and/or opposite-sex domestic partners.
Domestic partners are entitled to the same employer-provided benefits as spouses only if the benefit is subject to state law and the state law recognizes domestic partnerships. This happens most commonly with insured group health plans, which are subject to state insurance laws. Accordingly, if an employer’s group health plan is insured, state insurance laws dictate the requirements for same-sex or opposite-sex domestic partnership coverage. Notably, ERISA does not preempt state insurance laws.
If the state in which an employer is located does not recognize domestic partnerships, an employer with an insured group health plan is not required to offer domestic partner coverage to its employees. If an employer has employees in multiple states, the employer must determine which state insurance law controls with respect to the company’s group health plans.
Normally, the insurance law of the state in which the insurance policy is issued controls. In the case of a group policy, the place of delivery of the master contract normally controls, regardless of where individual certificates of coverage may be delivered to employees. However, certain states apply their insurance laws on an “extraterritorial” basis. This means that even if a policy is issued outside the state, if the employer has a majority of its employees there, that state will require insurers doing business in the state to issue policies that comply with that state’s laws (including required coverage of domestic partners).
If an employer’s group health plans are self-insured, the employer can decide whether or not to provide coverage for domestic partners and state law has no impact on that decision. The employer’s plan documents, rather than the insurance contracts, will determine if domestic partners are eligible. If domestic partners are not eligible for coverage under the terms of the governing plan documents, an employer could amend the documents to provide coverage on a prospective basis.
Regarding tax-treatment, under federal law, an employer can provide pre-tax health insurance benefits only to spouses or dependents, not to domestic partners. The benefit (and income tax) issues with respect to domestic partner coverage therefore become a bit more nuanced, so if an employer ends up providing and subsidizing domestic partner coverage for any of its group welfare benefits, the employer will want to make sure that the employee receiving any employer-paid coverage for a domestic partner is paying income tax on the value of the benefit received (in other words, the employee would have imputed income equal to the value of the benefit received). Paying imputed taxes for a domestic partner – that’s what love is.
