Thursday, May 5, 2005
Early in 2004, after nearly two years in a committed relationship, Dan Jessup added his partner to his health insurance, as his employer, the big Wall Street firm J.P. Morgan, allows.
For more than a decade, a focus of gay rights groups and other activists has been persuading employers to offer health insurance and other benefits to the domestic partners of unmarried employees. And Jessup was pleased that his employer was among those that did.
Employer-provided group insurance "was a great plus for us because he is a self-employed writer and content developer" and J.P. Morgan's coverage "was much cheaper than what he could get on his own," Jessup said of partner Bob Chenoweth.
But there was shock in store for the 39-year-old worker in Morgan's commercial banking division in Indianapolis: His taxes took a big jump.
"Something I didn't understand at the time was how much the taxes would be. I was very surprised when I started doing my taxes" this spring, he said.
As an increasing number of employers make health care coverage available, unmarried workers are finding that as one barrier falls, another remains standing: taxes.
Whether in same-sex or heterosexual unmarried unions, employees who take advantage of health care coverage for their partners are stuck with tax bills for the benefits.
Under federal law, any portion of an employer-paid insurance premium that goes for coverage for a domestic partner is treated as taxable income to the employee. The employee also may not make any payments for partner coverage, such as premiums under a "cafeteria" benefit plan, with pretax dollars.
The rules apply whether an employer buys medical coverage from an insurance company or whether it "self-insures" and allocates part of the costs to the worker, said Randall Abbott of the Boston office of Watson Wyatt Worldwide, a benefits consulting firm.
"Regardless, it's the employer portion of that premium. If the employer is paying 80 percent, that's what the employee is taxed on. The employer withholds taxes on it, and it is reported as income on the employee's W-2" wage reporting form, Abbott said.
Rising medical costs have added to the pain this year, Jessup said. In January of this year, as health care costs to the firm increased, taxes increased proportionately.
"My taxes went up $150 a month. That's something I hadn't planned for," he said of the reduction in his paycheck caused by additional withholding.