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.

Taxability of Benefits

As of July 22, 2013, the date on which the US Supreme Court ruling in Windsor v. United States became official, the extension of medical and dental coverage to same sex spouses and their dependents is exempt both from Vermont state income tax and from federal income tax, including Social Security and Medicare tax.

The federal government has yet to communicate whether or not, as a result of the Windsor decision, they will continue to tax healthcare benefits provided to civil union partners, same-sex spousal equivalents (see the definitions below), and the dependent children of these two groups. Once that decision is communicated, the information on this page will be updated as appropriate.

The Bottom Line: Faculty and staff who extend their benefits to cover a civil union partner or same-sex spousal equivalent (and/or that partner's children), should expect the value of those benefits to continue being imputed as income at the federal level, if the individuals to whom coverage is extended do not meet the IRS definition of tax dependent. Read the overview below, but see IRS Publication 501 for a full explanation of a "tax dependent," and consult with a professional tax advisor for guidance.

Definitions

Taxability of Premium Payments

As of July 22, 2013, premium payments for healthcare coverage of same-sex spouses and their dependent children are not subject to income tax by either the federal government or the State of Vermont. The fair market value of the University's contribution for healthcare coverage is not considered taxable income.

Barring further guidance from the US Department of the Treasury, premium payments for healthcare coverage of civil union partners and their dependent children are taxed by the federal government, but not taxed by the State of Vermont. 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 are taxed by both the federal government and by the State of Vermont. 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

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:

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.

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 July 22, 2013