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Bill adds domestic partners to health tax breaks


WASHINGTON--Legislation has been introduced in the U.S. Senate that would extend the same favorable tax treatment to health insurance coverage offered to employees' domestic partners that employer coverage provided to employees' spouses and dependents now receive.

Under the measure introduced Wednesday by Sens. Maria Cantwell, D-Wash., and Gordon Smith, R-N.H., the cost of employer-paid coverage provided to a domestic partner or other nondependent, nonspouse beneficiary, would not be added to an employee's taxable income.

Additionally, employees could withdraw on a tax-free basis funds in their health savings accounts to be reimbursed for medical expenses incurred by a domestic partner. Currently, such withdrawals would be taxable to the employee, with an additional 10% penalty tax imposed.

The measure also would exclude the value of coverage in determining employees' wages for Social Security payroll tax purposes, as well as permit special trusts--known as voluntary employees' beneficiary associations--to provide health insurance to employees' domestic partners without the trusts losing their tax-exempt status.

A group of nearly three dozen major employers--including such well-known companies as Coors Brewing Co., General Mills Inc. and Hewlett-Packard Co.--have banded together through the Business Coalition for Benefits Tax Equity to support the bill, said James Delaplane, who represents several members of the coalition and is a partner with Davis & Harman L.L.P. in Washington.

Increasingly, employers have decided to extend health care coverage to employees' domestic partners because they believe it will help them to attract and retain employees, Mr. Delaplane said. "Now, it is time for the tax code to catch up," he said.