Offering Benefits for Domestic Partners

Providing benefits for employees who are in a domestic partnership can enhance workplace satisfaction and inclusivity. However, this approach comes with its own set of challenges. Generally, domestic partner benefits include medical and dental insurance, but benefits can also extend to disability and life insurance, family and bereavement leave, education and tuition assistance, and more.

This approach to employee benefits recognizes the diversity of modern relationships and sets the stage for exploring best practices and the tax implications surrounding domestic partner benefits in the workplace.

How is “domestic partnership” defined?

No one uniform rule defines a domestic partner. Some employers choose to establish their own definitions and reference state or local law registration systems when available.

Yet some common plan requirements state domestic partners:

• Have lived together for a specified period (generally, at least six months);
• Share financial responsibilities;
• Are not blood relatives;
• Are at least 18 years of age;
• Are capable of sound mental judgment;
• Intend that the relationship be of unlimited duration;
• Register as domestic partners if there is a local governmental registry;
• Are not legally married to anyone or engaged in another relationship; and
• Agree to inform the company if the domestic partnership terminates.

Certain plans require an affidavit confirming domestic partnership status to be turned into a plan administrator, along with a “termination of domestic partnership” form if the relationship dissolves.

When creating plans, employers should clearly outline the benefits and consider extending eligibility to domestic partner dependents. Additionally, summary plan descriptions (SPDs) must explicitly define the eligibility criteria and range of benefits offered.

Reasons to offer domestic partner benefits

Companies offer domestic partner benefits for many reasons, some of the most common are:

• Hiring and retention: Domestic partner benefits can boost an organization’s ability to attract and retain talent by providing inclusive health plans for employees in non-marital relationships.
• Improved employee productivity: Benefit programs create a safety net for employees and their families, enhancing focus on work. Employers can boost morale and productivity by demonstrating that they value and support their workers. Plus, expanding benefits to include domestic partners helps to meet the evolving needs of the modern workforce.
• Ethical concern for others: Many employers provide domestic partner benefits for ethical reasons, aiming to grant non-married couples the same rights enjoyed by couples who are married.
• State law requirements: Some states, such as California, have laws that require health insurance coverage for domestic partners.

Reasons some employers do not offer domestic partner benefits

Companies may decide not to provide domestic partner benefits for various reasons, including:

• Availability of same-sex marriage: Previously, employers provided domestic partner benefits to those in same-sex relationships due to the illegality of marriage for them. Now that it is legal in all 50 states, some employers do not see the need to continue providing domestic partner benefits.
• Fraud concern: Employers often hesitate to offer domestic partner benefits due to concerns about employees misrepresenting their relationships. Compared to marriages, domestic partnerships do not carry the same legal implications, leading to concerns that an employee may enter a partnership, solely to gain access to health benefits. Many require a legally binding statement confirming the partnership to mitigate this risk.
• Tax issues: Administering domestic partner benefits can be complicated due to differing tax rules compared to spousal benefits. If a domestic partner is not a “tax” dependent, employees may face taxes on employer-provided health benefits, which can also impact the employer’s tax obligations.
• Non-qualified participants: Employers should be prepared to navigate an array of compliance exceptions associated with domestic partner benefits. Examples include domestic partners not being “qualified beneficiaries” under COBRA and not generally being recognized for purposes of FMLA. Some jurisdictions may have modified rules with different state requirements if you operate in multiple states.

Potential tax implications

When choosing to offer benefits to domestic partners, companies should be aware that domestic partners are not considered legal spouses for federal tax purposes. This means employers must report the fair market value (FMV) of domestic partner health coverage for tax calculations.

To qualify for non-taxable benefits, a domestic partner must meet specific criteria as a “dependent” under the Internal Revenue Code, which includes sharing the same primary address and receiving over half of their support from the employee. If these conditions are met, health benefits can be provided tax-free.

The primary concern for employers is that domestic partner benefits are often very expensive due to tax treatment and can have a huge impact on the employee’s cost. The employee may find it more beneficial to explore the Affordable Care Act (ACA), especially if they are eligible for a premium subsidy. Employers must navigate the complex landscape of benefits, employment, and taxes associated with domestic partner benefits. This can be challenging due to varying laws and regulations across different states. Before offering these benefits, employers should thoroughly assess the domestic partner regulations in each state they operate in.

It’s important to understand the different needs and values of your workforce when considering domestic partner benefits. Engaging with employees to learn about their preferences can help create a benefits package that supports everyone, no matter their relationship status. By being thoughtful and informed, employers can build a workplace culture that promotes loyalty and inclusivity.