Taxable Fringe Benefit

Most people aren't aware of this, so I thought I'd do a little write up on one of the issues that same-sex partners face with regards to health care. I work in California for a public company, which means they have to provide families like mine with the option of buying health insurance for the whole family. That means like other married opposite sex partner families, I can buy health insurance for my partner and for our daughter. California has rights for same-sex couples to make this possible.

The issue comes about because the federal government doesn't recognize same-sex partners. Because of this, when a company, like mine, contributes towards the payment of health insurance to cover my partner, it becomes a taxable fringe benefit. It gets even worse if we decide to cover my daughter under the same policy. Why is that? Her coverage no longer gets considered in the taxable fringe benefit scenario.

Let me explain this with an example. Say my company pays $300 per month for my health insurance. For me to add my daughter, the company would then pay $500 for what's called a family plan. Because she's my daughter, there's no taxable fringe benefit involved (as both the federal and state governments recognize your child as yours). But if I were to add my husband, the company would still pay $500 per month, as there's no difference between covering 1 family member or many. But the effect on my taxes is significant. The entire amount between $500 and $300 (the $200 difference) is computed as a taxable fringe benefit on my paystub. There's no allowance for the fact my daughter is also paid under this difference. What's the actual impact to the bottom line? The extra $200 shows up as extra pay, so my gross income goes up by the $200 per month, increasing the amount I owe in taxes.

Because of this discrepancy we've chosen for me to cover just my daughter and myself under my health plan, and for my husband to pay for his own because the taxable fringe benefit actually costs us more in taxes than it would for him to buy his own insurance. This is added cost over what any opposite sex partner family would have to pay for their health insurance.

If that's not enough, it gets even worse. My company uses a system called ClearBenefits, which works with ADP, a national payroll processing company. The two companies together haven't figured out how to handle domestic partnerships or same-sex marriages. Because I'm listed as having a domestic partnership/same-sex marriage, this information is automatically transferred from ClearBenefits to ADP. And because I purchase health insurance on a family plan for my daughter (but not my husband) this information (that I'm in a domestic partnership) also gets automatically transferred between ClearBenefits and ADP. The side effect of this is that ADP kept adding taxable fringe benefit (because of the domestic partnership) on my health insurance on my pay check, even though they weren't supposed to (since we weren't getting insurance for my husband, just my daughter).

I'd complain every paycheck and they'd remove it, and then it'd show up again, and I'd have to complain again. This has happened two years in a row (after each benefit selection period), and it's happened for 4 months in a row. I think this paycheck for the most recent period was one of the first I didn't have an issue, so I'm keeping my fingers crossed. If you fall into this specific scenario I'm talking about, take a close look on your paystub and make sure you don't have TFB.