Domestic partner coverage recognizes the same or opposite sex partner of an employee, usually without a legal relationship, as a dependent for employer-sponsored group health plans, as available by insurance carrier.

Employees who elect to add a domestic partner are typically required to complete and sign affidavits affirming the beginning or end of a relationship. The affidavits may be prepared by the employer, its legal counsel, or the insurance carrier and may indicate that the domestic partners:

  • are in an exclusive committed relationship for a minimum period of time (such as six months or a year);
  • live together in the same principal residence;
  • have shared financial obligations such as a common lease or mortgage;
  • are not married or in a committed relationship with any other person;
  • are not related by blood; and
  • are over age 18; or
  • have ended the relationship and terminated the partnership.

Tax Consequences

We recommend that you consult your corporate accountant for additional clarification of the following tax information.

Taxability of Group Health Coverage

Federal tax code does not allow tax-advantaged employer-sponsored health coverage to be provided to an employee’s domestic partner, unless the domestic partner qualifies as the employee’s tax dependent under the Internal Revenue Code (IRC) §152 (“qualifying relative” rule). The employee should indicate his or her domestic partner’s tax dependent status on the signed affidavit.

Unless the domestic partner satisfies the IRC §152 definition of a dependent, the fair market value of domestic partner coverage is taxable to the employee as imputed income. Any employee-paid share for domestic partner coverage may be made on a pre-tax basis but will not reduce the imputed income amount. Employers should seek guidance from their Keller consultant or corporate accountant in determining the fair market value of coverage.

If the domestic partner’s child or children are also covered, the taxability of their coverage will also depend on whether or not the child qualifies as the employee’s tax dependent under the IRC §152 definition of a dependent.

Note: A non-tax dependent domestic partner’s (or child’s) claims are never eligible for reimbursement through a health care flexible spending account (FSA) or a health savings account (HSA).

State Income Tax Treatment

Most states follow federal income tax treatment for domestic partners. However, several states may allow domestic partner coverage to be excluded from the employee’s gross income under certain circumstances (e.g., in California and the District of Columbia, the domestic partners have to be registered with the state; in Oregon, the state income tax exemption is for same-sex domestic partners only).

Employer Deduction

There are currently no IRS rulings on the employer’s ability to deduct the employer-paid portion of domestic partner coverage. Employer contributions to employee health coverage are currently deductible under IRC §162, which does not specifically limit the deduction that includes spouses and dependents. Therefore, it appears that employers are allowed to take the business deduction for employee health coverage that includes domestic partners.

Other Benefit-Related Issues

Employers who add domestic partner coverage to their group health plan need to address other benefit legislative and administrative issues.

COBRA Continuation Coverage

A domestic partner is not a COBRA qualified beneficiary and therefore will not have his or her own COBRA rights. A domestic partner’s children that are not dependents of the employee may also not be COBRA qualified beneficiaries. However, employers may choose to offer COBRA-equivalent coverage to covered domestic partners and children who have a COBRA qualifying event, such as termination of employment by the employee. These provisions should be verified in advance with the health insurance carrier.

Family Medical Leave Act (FMLA)

Federal FMLA does not include provisions for domestic partners. Employers may choose to offer FMLA-equivalent leave for events relating to domestic partners. Some states, including the District of Columbia, may provide state FMLA-like leave for employees with a domestic partner. Therefore, employers should review any applicable state law to determine if leave for care of a domestic partner must be included.

HIPAA Portability

When the group health plan’s definition of dependent includes domestic partners, domestic partners are automatically eligible for most HIPAA special enrollment rights. Employers are required to allow mid-year enrollment when a domestic partner has a loss of other coverage, assuming the domestic partner meets all other special enrollment requirements (e.g., applies within 30 days from loss of coverage).

However, domestic partners are not required to be eligible for mid-year enrollment upon commencement of the domestic partnership because HIPAA only provides mid-year enrollment for marriage, birth, or adoption. However, employers may choose to include provisions for mid-year enrollment opportunities for a newly eligible domestic partner beyond HIPAA’s minimum requirements. These provisions should be verified in advance with the health insurance carrier.

Other Benefit Plans and Practices

All employer provided benefits (e.g., voluntary life, wellness programs, long-term care insurance, discount programs, scholarship funds) and practices (e.g., sick and bereavement leaves) should be reviewed for administrative, taxation, state law, and contract issues before deciding whether to extend coverage to domestic partners.