Separate wills, tax returns and other legal procedures cost unmarried couples more than the fee for a marriage license
As employees at Cape Cod Healthcare were gearing up for Christmas last year, some got an early lump of coal in their stockings.
The company, which operates two Massachusetts hospitals and employs 4,000 people, had been offering health insurance to the domestic partners of its employees for five years, but it had never collected the state and federal taxes that must be paid on that benefit.
To withhold the necessary 2003 taxes, Cape Cod Healthcare kept back the paychecks of those employees who had received the benefit though it softened the financial blow.
“First of all the timing was horrible and, in fact, they corrected that,” said Jerry Fishbein, regional vice president for Local 2020 of the Service Employees International Union (SEIU) which represents employees at Cape Cod Healthcare. “They released paychecks in the form they called a no interest loan…The hospital said very red-faced this was our mistake and we are trying to comply with the law.”
The error was unearthed in a 2003 tax audit that was done by Jonathan A. Leamon, director of compensation benefits, who joined the company in August of last year.
“Through an end of the year audit we caught it therefore we made the correction,” Leamon said. “We made that correction at the point that we discovered it.”
Now those same employees will take a substantial hit in their state and federal tax bills on April 15.
“It’s roughly $2,000 for single coverage,” Leamon said. “That’s assuming a benefit worth about six thousand dollars and those are very rough numbers.”
The misadventure illustrates the unequal treatment given to domestic partnerships and civil unions under state and federal law. Had those same benefits been paid to a legal spouse they would not have been taxed at all.
Assuming that lesbian and gay couples start marrying on May 20 in Massachusetts that unequal treatment will continue under federal law and the laws of the other 49 states.
“We believe that that may in fact be the case, but it may also be subject to challenge,” said Andrew D. Sherman, senior vice president at the Segal Company, an international actuarial and benefits consulting firm. “As consultants we can’t provide legal or tax advice, but we are certainly advising our clients that the IRS may consider benefits provided to same gender spouses as taxable income.”
Currently, only Vermont treats under state law same-sex couples in civil unions just like married couples. Some same sex couples there may even pay the so-called marriage penalty that is incurred when a two-income household is taxed at a higher rate because the couple reports a higher household income by filing a joint tax return instead of as two individuals.
“My guess is that you could easily pay more taxes based on that because there is a federal marriage penalty,” said Sandra K. Enman with the Vermont accounting firm, Enman and Associates. “I honestly think, from a tax point of view, it’s a disadvantage to be married.”
The federal government does not recognize civil unions so a Vermont couple in such a union must file two individual federal tax returns. To calculate their state taxes, they must complete a federal return as if they were married and then consult state tax charts to determine how much they owe Vermont.
That is a small burden on Vermont couples in civil unions.
“They are going to pay the same taxes as if they are married,” Enman said. “It costs them more to prepare their tax returns. The accountants make a little money on that.”
Only three other states — New Jersey, California and Hawaii — have enacted state laws that grant some benefits to same sex couples who register as domestic partners, according to the Lambda Legal Defense and Education Fund, a gay legal advocacy group. None of those laws have the scope of the Vermont civil union law.
Should gay and lesbian couples in Massachusetts begin marrying in May they will be treated just like straight married couples under that state’s laws, but, just like couples in civil unions, their marriages will likely not be recognized by any other state or the federal government.
“There are some states where those marriages might be recognized and New York might be one of them,” said Daryl Herrschaft, deputy director at the Human Rights Campaign, the gay lobbying group.
Complicating such recognition are the 38 states that have passed laws or amended their state constitutions to define marriage as only between a man and a woman.
“I think the legal issues surrounding that are going to take some time to work out,” Herrschaft said. “In the interim, gay and lesbian couples will continue to face discrimination in many states and certainly by the federal government.”
The Internal Revenue Service has long held the view that domestic partner benefits are taxable. The 1996 federal Defense of Marriage Act further solidified that position and guaranteed that same-sex couples will be denied a large number of federal rights and benefits.
“Whatever happens in Massachusetts with same-sex marriage licenses gay and lesbian couples will continue to face discrimination in the vast majority of states and will continue to be denied more than 1,000 federal benefits of marriage such as Social Security benefits and tax preferred treatment of health insurance plans,” Herrschaft said.
Lesbian and gay couples must resort to expensive legal strategies to protect their relationships. Kathryn and Elisabeth Jay, both Barnard College professors, have spent tens of thousands of dollars in their four years together on wills, a legal name change, and other documentation. They did it to get only some of the legal protections that heterosexuals in New York City gain simply by paying $35 for a marriage license and getting hitched.
Similarly, Judith Tax and Rabbi Nancy H. Wiener, partners of 17 years, have paid for wills and durable powers of attorney, but Wiener said of those “The paperwork we have can all be challenged.”
For Kathryn Jay, however, the legal benefits are important, but secondary. “Elisabeth is the person that I love the most in the world and we have taken all the legal steps available to us,” she said in a March 3 interview. “It is ingrained in our culture that getting married is something you do when you fall in love with someone and want to spend the rest of your life with them. That is not really a legal protection. It’s more of a cultural idea about what people who love each other do.”
