Every year the IRS insults me.
First, I have to check single on my tax form. People, I've been with the same wonderful woman for 14 years, I am not single! Second, even though we are now legally married, my tax person has to complete extra tax forms, we are married and can file jointly the state, but we have to file single for the feds and so Tax Lady Nancy has two run our numbers twice. Thirdly, because I am self-employed and receive health insurance through Molly, my health benefits are taxed as extra income by the IRS.
Makes you want to scream marriage equality now, doesn't it?
But recently, Molly was at a panel where Patricia Cain, an Inez Mabie Distinguished Professor of Law of Santa Clara University's School of Law, announced a way around complaint #3.
Here's what she says:
Do you pay federal income taxes on employer-provided domestic partner health benefits? If so, you might want to discuss with a tax professional whether or not you are entitled to receive those benefits tax-free.
There is a common misunderstanding that domestic partner benefits are always taxable. But that is not true if the domestic partner is a "dependent" of the taxpayer/employee. A partner can qualify as a dependent for these purposes even if the partner is not a tax dependent for deduction purposes. That is because there are two different definitions of dependent in the Internal Revenue Code.
To be a dependent for deduction purposes the partner must have income below $3650. But to qualify as a dependent for purposes of excluding the value of the health benefits, there is no gross income limitation.
To qualify under this alternative definition, the taxpayer and partner must share the same household for the entire year and the taxpayer must provide over 50% of the partner's support. The IRS clarified this rule in Notice 2004-79, available on line.
But for some reason, many employers seem to be unaware of the rule. Instead, whenever an employee asks whether the employer can exclude the value of the benefits on the W-2, many employers require proof that the employee is claiming a dependency deduction for the partner.
If you qualify for the exclusion because you and your partner share a household and you provide over 50% of the support, you should ask your employer for an amended W-2. If the employer asks for proof of a dependency deduction or evidence that your partner's gross income is below $3650, show your employer Notice 2004-79. If you can't get an amended W-2, you should nonetheless exclude the amount that was wrongly included on your W-2 and explain in an addendum to your tax return why you are excluding it.
Professor Cain noted that several employers were reluctant to take our tax requests seriously and has committed herself to getting the word out about this option.
As mentioned above, please consult your gay-friendly tax person, so they can become informed about this option and share it with their clients.
And remember, this is yet another reason why we need to lift DOMA and have access to marriage equality, unless you enjoy paying the government more to be treated as a second-class citizen.
With liberty and justice for all!