We wasted thousands of dollars every year for over nine years on health insurance. Are you doing the same? You might be–if you and yours aren’t married but you are listed on the same insurance plan.
Just because we’re a gay couple, that doesn’t mean this article doesn’t apply to you. This is one mistake that is way too easy to make. There’s also a simple solution.
When John and I first started dating, we each had corporate jobs for different companies with individual health insurance coverage. Then, we worked for the same employer for almost seven years. That employer offered domestic partner healthcare benefits. Most companies today offer domestic partner healthcare benefits. Although, with marriage equality, some businesses are requiring that the party–same-sex or heterosexual–be married to qualify for the benefit.
After a year, John and I moved into an apartment together. We eventually learned that in most states (though not all), common-law marriage applies to same-sex and heterosexual couples alike.
We lived on in our un-wedded bliss until John left his job to focus on our business. When that happened, I pulled the domestic partner card and had John added to my insurance offered through my employer. This was a benefit we were both grateful for at the time and afforded us the opportunity to let John quit his job to focus on our goals. Unfortunately, this benefit was costing us over a hundred dollars a month.
Taxes and Domestic Partner Benefits
The federal government treats the portion of the insurance premium that your employer pays for you as a business expense rather than as income. Yay, no taxes. Your domestic partner (gay or straight), on the other hand, has no such luck. Boo, taxes.
Your employer is required to define the portion of your domestic partner’s benefit as income to you, the employee, which means you’ll pay taxes on this payment. I was fortunate to work for a company that increased my income proportionally to cover those taxes. That was money out the door, and that’s not a benefit every employer offers. This healthcare and tax strategy is costlier to employers, too, domestic partners are not considered spouses by insurance companies. From the insurance company’s perspectives, you and your domestic partner are considered an employee plus one, which is generally more expensive.
If you or your partner are listed as domestic partners for healthcare benefits, look at how you are paid by looking at your pay stub. Your employer may not be covering those taxes–therefore, you are.
More on Wedded Bliss: How Getting Married Saves You Money
How to Avoid the Taxes and Put Money in Your Pocket
For John and me, it was a fluke that we learned this. You see, we stumbled upon this information when we talked with David Freitag of Mass Mutual on our “Queer Money” podcast. Freitag shared information about Social Security survivor and spousal benefits for domestic partners versus married couples. We were shocked to learn that many couples, primarily though not exclusively LGBTQ couples, are leaving hundreds of thousands of dollars on the table.
What did we do?
We chose the easiest fix. We got married. We went down to the courthouse and got hitched. Yes, we married for money. Marriage is one way to fix all this.
When you get married, you no longer qualify as domestic partners, rather you qualify under the federal spousal definition of marriage, and the whole need for taxes on the domestic partner benefit disappears. For us, this returned over one hundred dollars a month back to my paycheck.
If the thought of marriage gives you cold feet, you have another option: If you or your domestic partner provides more than half of the financial benefit to the other, one of you is a dependent under the IRS definition. The IRS treats all dependents for the same as any other family member.
Now that you’re listed as family, you won’t have to pay the taxes associated with domestic partner benefit. This means more money back in your pocket.
As always, verify any changes you plan on making this with your human resource department and a tax professional before making the switch. Every situation is unique and there are a lot of variables.
Don’t Make the Mistake of Time
There are several keys to getting this all done right. For most employers, if you’re already registered as domestic partners, notify your employer of the “life-changing event” of marriage, if you choose one of these two options. Most companies and the healthcare providers give you a whopping 30 days to notify them, so don’t take too long of a honeymoon. This is very important. If you don’t report the event in a timely manner, you’ll be required to wait until the next open enrollment season. Again, check with human resources for your specific time frame.
If you choose to remain domestic partners and either one of you is a dependent of the other (per above), contact human resource to make the switch from domestic partner to dependent. This most likely will not be treated as a life event, and you’ll need to wait until open enrollment season to make the change. (Although, verify this with your human resource department before waiting.)
Bank the Money
For many of us, having an extra hundred dollars or more a month is a significant saving. We encourage you to bank your savings. We added ours to our wedding fund. If you’re not funding a wedding, add it to your emergency savings or retirement account.
Regardless, use this one tip to save more on your healthcare and put more money back into your pocket.
Click through to read more about the financial benefits of getting remarried.