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Rep. McDermott Introduces Legislation to Eliminate Federal Taxes May 22, 2009 
Rep. Jim McDermott introduced the Tax Equity for Health Plan Beneficiaries Act last night that would eliminate the federal income and payroll taxes that are currently imposed on health care benefits provided to domestic partners. “As America begins to confront the inefficiencies, inequities and injustices in our health care system, we must fully understand and recognize that in the modern workplace health care benefits are frequently extended to domestic partners,” Rep. McDermott said. “My legislation is about facilitating the expansion of health care rights to all people and ensuring fair and equitable tax treatment.” Most importantly, the legislation, HR 2625, would ensure equitable tax treatment of employer-provided health benefits. While there is a growing and positive trend in America by private employers to provide domestic partner benefits, federal law has not kept pace. Under the existing tax code, a typical employer-provided health care benefit is exempt from federal income and payroll taxes, providing employers and employees alike with an inherent tax break. However, the existing tax code treats domestic partner benefits differently and imposes a payroll tax on the employer who provides the benefit and an income tax liability on the employee who receives it. “There is no justification for the grossly unfair treatment some Americans receive today simply because Congress has not updated the tax code to reflect the modern labor market,” McDermott said. Under current tax law, healthcare benefits that are extended to dependent children or the spouse of the qualifying employee are not subject to federal income and payroll tax. This legislation would exempt all healthcare that is extended to a qualified beneficiary from federal income and payroll taxes. Increasingly, qualified beneficiaries have come to include domestic partners, of the same or opposite sex as the employee. A copy of the legislation is attached.
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