A growing number of U.S. companies provide benefits, such as health insurance coverage, for their employees’ domestic partners and their children. Businesses may decide to offer domestic partner benefits to attract and retain talented employees or because they desire to provide equal benefits regardless of marital status or sexual orientation.

At the federal level, no laws require or prohibit domestic partner benefits in the workplace. The federal Defense of Marriage Act of 1996 (DOMA) only impacts the taxation of employer-provided domestic partner benefits and defines “marriage” solely as the union between one man and one woman and “spouse” solely as an opposite-sex husband or wife.

So what does this mean and how can it effect the administration and taxation of domestic partner benefits on a Federal Level?

1. Domestic partner benefits are non-taxable only if the domestic partner or same-sex spouse qualifies as a dependent under the Internal Revenue Code’s definition of “qualifying relative”

To qualify as a dependent under this definition, the domestic partner or same-sex spouse must generally:

• Have the same primary address as the employee/taxpayer for the year;
• Be a member of the employee/taxpayer’s household;
• Receive more than half of his or her support for the year from the employee/taxpayer;
• Not be anyone’s “qualifying child” for tax purposes; and
• Be a citizen or national of the U.S., or a resident of the U.S. or a country contiguous to the U.S.
2. If a domestic partner or same–sex spouse does not qualify as a tax dependent of the employee, employers are required to report and withhold taxes on the value of employer-provided health coverage for the domestic partner or same-sex spouse.
3. In addition, an employee cannot pay for a domestic partner’s, same-sex spouse’s, or the Children that do not belong to them but not the Employees coverage on a pre-tax basis through a cafeteria (or section 125) plan if the partner or spouse or children are not the employee’s tax dependent. Thus leading to more administration to the employer because the benefits must be taxed.

It is common for employers to “gross up” an employee’s salary to offset the tax consequences of domestic partner benefits (that is, reimburse employees for the extra taxes they are required to pay on the value of domestic partner benefits).

4. Based on DOMA, the U.S. Department of Labor has concluded that domestic partners and same-sex spouses are not considered “spouses” for FMLA-leave purposes, although many employers allow employees to take leave to care for a domestic partner or same-sex spouse.
5. Likewise, because of DOMA, domestic partners and same-sex spouses are not included in the protections and benefits provided by various other federal benefits laws, such as COBRA and HIPAA. In addition, retirement plans are primarily governed by federal law and, consequently, domestic partners and same-sex spouses are generally not entitled to spousal benefits under such plans.

What is the effect on the State level of Texas?

Since DOMA was enacted in 1996, several states have passed legislation prohibiting same-sex marriages. Recognition of these same-sex unions performed in other states has also been banned in some states. Both the Texas Constitution and statutory law prohibit same-sex marriage. In addition, Texas law prohibits same-sex civil unions, and does not recognize same-sex marriages or civil unions legally entered into in other jurisdictions.

Despite Texas’s ban on same-sex marriage, private employers are free to decide whether or not to provide domestic partner benefits for their employees. If you are an employer that is trying to decide on providing domestic partner benefits, please contact one of our benefits specialists at CoVerica and we would be happy to assist you with your decision.

Key Man Insurance: What is my business and skillset worth to my employees and clients?

We can all agree that great ideas for a business start off with a simple thought, change, or skill set that a business owner has the ability to perform well and deliver.   Many ideas require certain skill sets or talents that only few people have so the question is: how do we protect that? Key man Insurance provides financial protection for a business in the event of a loss that would arise from death or an extended incapacity of a member of that organization whose skill set is essential and dependent on that single person (who is not easily replaced).

Along with protecting your core, there are a few other reasons to have Key Man Insurance.  If you have a Partnership with a partner(s) whose beneficiary would not want to take part in the business operations or lacks the skillset that you would need, then Key Man Insurance can provide the means to buy out the disabled or deceased partner allowing the remaining partner to maintain direction and control of the business.  Our last scenario before we look at an example is more practical regarding bank loans.  Banks will almost always ask for proof of a Key Man Policy when you apply for a business loan. You cannot blame them for having a concern for the financial health of their investment.

Let’s look at an example of where Key Man insurance is a great fit:

Dan has an IT and accounting business that specializes in the Dairy industry.  Josh is Dan’s partner and has the rights to a piece of software called Boxless solutions in which he is the only administrator to the program.  Both of them are very specialized in their industry and manage a large portfolio of clients along with about 40 employees.  Aside from tax season, their busy season is around the beginning of the 4^th quarter when milks major activity tends to slow down.  They both estimate that the absence of either partner would lead to a substantial financial loss especially if they are disabled during their busy season.  Furthermore, Russ is Josh and Dan’s brother who is a physician and the beneficiary to all that they have whom has no interest in running his business. Both exposures give the partners substantial reasons to have Key Man Insurance.

There are many reasons to consider Key Man insurance and we would love to discuss your Key Man Insurance needs.

For more information, please call or email us at contact@coverica.com.