The California Domestic Partnership Law no longer requires individuals wishing to enter into a state-recognized domestic partnership to be of same-sex of over the age of 62 as opposite-sex. Senate Bill 30 was signed into law on July 30, 2019 and provides another option to those wishing to enter into a registered domestic partnership rather than a traditional marriage. Unlike unregistered domestic partners, registered domestic partners must be offered the same employee benefits as spouses as the relationship is sanctioned and entered into with the state. But those benefits will be taxable federally (only) for the portion of the premium attributable to the domestic partner.
At a very minimum, absent tax dependency of the domestic partner and their children, federal taxes will apply to the employee benefits provided to the partner. If an unregistered domestic partner, both state and federal will apply. Calculating the tax rate can be achieved by subtracting the actual premium rate of the employee-only and employee plus spouse rate (for both employee and employer portions) with the sum being the amount attributable to the domestic partner. If there is no difference due to a family lump rate, use fair market value or the employee-only rate. For more information on Imputed Income (taxes) including for domestic partners, see the prior Leavitt article.
Unregistered Domestic Partners
Unregistered domestic partners represent another type of relationship status that some employers recognize for purposes of offering employee benefits. As an unregistered and non-sanctioned relationship, no state or federal law protects that group. As a result, no protections or benefits must be offered. Unregistered domestic partner criteria is up to the employer should they choose to offer benefits to those who cohabitate for a certain period of time-determined by the employer. Remember, no protections or rights apply. That means, the benefits are taxable, no COBRA rights attach and children of the unregistered domestic partner are not eligible as if stepchildren of the employee unless the child is an eligible tax dependent of the employee and not the parent.
California recognizes registered domestic partnerships entered into under the state registration laws reciprocally – meaning, if another state sanctioned a registration entered into in that state, California will recognize it even if the criteria for registration is different. For a complete list of state domestic partner laws, see the National Conference for State Legislatures (NCSL) table.
Taxation and administration remain barriers to offering domestic partner coverage, however, in states offering registration, employer must offer such coverage for employees entered into the state-recognized domestic partnership. While a domestic partner may be covered under the employee benefits plan, federal tax benefits will not apply, Meaning, in all cases federal taxation must be imputed and added to the employee’s taxable income. Additional consequences to not being covered under the federal tax code include ineligibility for tax-free Flexible Spending and Health Savings Accounts expenditures.
Remember – other federal law will not apply even if the state recognizes the domestic partnership and affords state rights. Federal protections do not apply:
COBRA – COBRA-“like” benefits may voluntarily be offered by the employer and some state laws may provide state continuation coverage but there is not a federal COBRA right that attaches to domestic partners and their children if not tax dependents of the employee.
FMLA – Federal leave protections do not apply to domestic partners. However, the FMLA will extend to the children of the domestic partner under the in loco parentis rule for purposes of caring for the child provided they meet the requirement of providing day-to-day care and at least 50% of the financial support for the child.
HIPAA Special Enrollment – The acquisition of a new registered domestic partner does not trigger a special enrollment right under HIPAA like it does with a new spouse. Employers may have this required under a state law that mandates covering registered domestic partners, as it does in California.
For more information on the IRS treatment of domestic partners, see the FAQ on Domestic Partners and Civil Unions.