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Same-Sex Benefits Information

Benefits Information for Same-Sex Couples

Overview

The State of Vermont's marriage law allows individuals to extend medical and dental coverage to a civil union partner or same-sex spouse and his/her dependents, so long as the marriage or civil union was validly issued in the jurisdiction in which it was solemnized, and it does not violate Vermont law or the express public policy of the State of Vermont.

Definitions

  • Civil Union: a legally-recognized union similar to, but not identical to marriage, validly entered into in Vermont or another state. (Note: Other states may refer to this union as a "domestic partnership." Vermont allowed civil unions to be performed from July of 2000 through August of 2009. Since the establishment of same-sex marriages on September 1, 2009, civil unions are still recognized by the State of Vermont, but are no longer performed.)
  • Spouse: a partner in a legally-recognized marriage relationship.
  • Same-Sex Spousal Equivalent: a same sex partner who is not joined by marriage or a civil union.

Taxability of Premium Payments and Employer Provided Healthcare Coverage

As of July 22, 2013, the date on which the US Supreme Court ruling in Windsor v. United States became official, premium payments for healthcare coverage of same-sex spouses and their dependent children are not subject to income tax (including Social Security and Medicare tax) by either the federal government or the State of Vermont. Similarly, the fair market value of the University's contribution for healthcare coverage is also not considered taxable income for these individuals at the state or federal level.

The federal government, through the US Department of the Treasury, made clear on August 29, 2013 [Rev. Rul. 2013-17] that premium payments for healthcare coverage of civil union partners and their dependent children will continue to be taxed as imputed income by the federal government, if the individuals to whom coverage is extended do not meet the IRS definition of the employee's tax dependent. In contrast, the State of Vermont continues not to tax such premium payments. Similarly, the fair market value of the University's contribution for healthcare coverage will continue to be considered taxable income for federal tax purposes, but not for the State of Vermont.

Premium payments for healthcare coverage of same-sex spousal equivalents and their dependent children will continue to be taxed as imputed income by both the federal government and the State of Vermont, if the individuals to whom coverage is extended do not meet the IRS definition of the employee's tax dependent. Similarly, the fair market value of the University's contribution for healthcare coverage is considered taxable income for both federal and state tax purposes.

Type of Partnership Federal Tax on
Healthcare Coverage
VT State Tax on
Healthcare Coverage
Same-Sex Marriage
No
No
Civil Union
Yes
No
Same-Sex Spousal Equivalent
Yes
Yes

For further information about the U.S. Treasury's implementation of the Windsor ruling, including the possibility of filing a tax refund claim, visit: www.treasury.gov/press-center/press-releases/Pages/jl2153.aspx.

Eligibility of Dependents

UVM employees may apply for dependent healthcare benefits for their same-sex spouse or civil union partner and his/her dependent children. In order to qualify for coverage, dependents must meet the eligibility requirements of the University medical, dental, and life insurers. The following statements summarize these conditions:

Dependents are considered qualified dependents if they are:

  • the spouse or civil union partner of the employee
  • the dependent child of the employee
  • the dependent child of the employee's spouse or civil union partner

A spouse or civil union partner will qualify if (i) the marriage or civil union is valid in the jurisdiction in which it was solemnized, and (ii) the marriage or civil union does not violate Vermont law or the express public policy of the State of Vermont.

The University reserves the right to request from employees, at the employee's expense, an opinion from a qualified attorney attesting to the validity of any marriage (same-sex or heterosexual) and any civil union according to the laws of the jurisdiction in which it was solemnized. The University further reserves the right to seek an independent verification of the validity of any marriage or civil union, and to require proof of legal responsibility for dependent children.

The University will also extend benefits eligibility, for the first three months of employment, to the same-sex spousal equivalent of a new employee who comes to UVM from another state where civil unions and same-sex marriages are not legal. To retain spousal benefits, an employee in this situation must enter into a marriage under Vermont law within three months of employment.

Note: The University makes no representations about the taxability of coverage extended to Dependents as outlined above. See IRS Publication 501 for a full explanation of a "Tax Dependent," and consult with a professional tax advisor for guidance.

Flexible Spending Account Restrictions

The Flexible Spending Account program is a federal program designed to allow employees to shelter some of their earnings in order to pay certain unreimbursed healthcare expenses and/or qualified dependent care expenses with pre-tax dollars. Participation requires employment in at least a nine-month position at a minimum of 50% full-time equivalency.

As of July, 22, 2013, the qualifying healthcare and/or dependent care expenses of a same-sex spouse (and/or their eligible children) are reimbursable through a Flexible Spending Account. See the Flexible Spending Account page for information on setting up an account.

Healthcare and/or dependent care expenses for a civil union partner, a same-sex spousal equivalent and/or their dependent children are NOT reimbursable through a Flexible Spending Account.

403(b) Retirement Inheritance for Civil Union Partners and Same-Sex Spousal Equivalents

Since 2007, IRS Code has permitted the direct rollover of a deceased employee participant's retirement account to an individual retirement account (IRA) established on behalf of a designated "non-spouse" beneficiary.* This rollover distribution will not trigger immediate income tax consequences or mandatory tax withholding for the non-spouse beneficiary.

To take advantage of this option, the employee must establish a special Inherited Individual Retirement Account through a bank, with the heading "(Deceased Employee Name) for the Benefit of (Beneficiary Name)."

*Non-spouse here refers to the IRS definition, not to the Vermont same-sex marriage definition.

Important Disclaimer

Note that the information provided here is not intended as tax advice; it is intended rather to alert individuals to the potential financial ramifications of adding benefit plan coverage for same-sex spouses and civil union partners. The University of Vermont strongly encourages faculty and staff to consult a qualified tax professional for guidance.

Updated September 8, 2013

Last modified September 08 2013 03:29 PM