Tax Equity Information Sheet
Why are tax equity policies needed?
When employees receive health insurance coverage from their employers for their families, the majority of their employers contribute at least half of the insurance coverage’s cost. For opposite sex couples, employers are not required by state or federal law to report their contribution to their employees taxable wages earned- health insurance coverage is excluded from that employees gross income.
For employees in domestic partnerships, the employers contribution toward health care-coverage for the employees domestic partner must be reported as taxable wages earned resulting in the employee taking home less pay. On average, employees in domestic partnerships pay $1,069 more per year in taxes than their married counterparts.1
What can employers do to address this inequity?
Employers that are committed to fairness in the workplace, and wish to provide equal pay for equal work to all employees are able to address this inequity. Employers must ensure that all employees have equivalent post-tax incomes.
To do this employers “gross up”, which is the practice of increasing pre-tax income so that all post-tax incomes are equitable. Essentially, grossing up provides for equal pay for equal work.
In fact, employers in the public and private sector are working to fix this inequity and ensuring all of their employees are treated equally. According to the Human Rights Campaign thirty two private sector employees, including major corporations like Google and Facebook “gross up” their employees salaries. Cities like Cambridge, Massachusetts and Hallandale Beach, Florida have also enacted such policies.
Who is a Dependent Domestic Partner for Pre-Tax Health Coverage?
IRS Publication 501 contains information on how to determine a dependent. In general, the following conditions must be met (in addition to meeting the City of Miami Beach’s domestic partner eligibility requirements) for a domestic partner to qualify as a tax dependent for pre-tax health coverage purposes under federal tax law:#
Employee and employee’s domestic partner have the same principal place of abode for the entire calendar year;
Employee’s domestic partner is a member of employee’s household for the entire calendar year (the relationship must not violate local law);
During the calendar year, employee provides more than half of the domestic partner’s total support;
Employee’s domestic partner is not employee’s (or anyone else’s) qualifying child under Code 152(c); and
Employee’s domestic partner is a U.S. citizen, a U.S. national, or a resident of the U.S., Canada, or Mexico.
Note that the employee’s domestic partner could be the employee’s federal tax dependent for health coverage purposes even if the employee does not claim an exemption for him or her on the employee’s Form 1040.# The City of Miami Beach will also consider the employee’s different-sex domestic partner to be the employee’s federal tax dependent for health coverage purposes if he or she meets the above requirements for the first portion of the year, then the employee marries, and he or she remains the employee’s legal spouse for the remainder of the year.
For more information on tax equity policies, please contact Mallory Wells, Public Policy Director for Equality Florida at [email protected]