Honey, I Shrunk the Incentive: EEOC Proposes Wellness Regulations

EEOC regulations proposed in the final days of the Trump Administration would, if finalized, reduce the permissible incentive for participatory wellness programs to a de minimis amount – such as a water bottle or T-shirt.  The current incentive cap is equal to 30% of an individual group health premium, which works out to around $180 per month.  The Biden Administration has withdrawn the proposed regulations from publication in the Federal Register under a regulatory freeze pending review.  Although they may not be finalized in their current form, the proposed regulations reflect the thinking of the EEOC on how small an incentive must remain (answer:  very small) in order to preserve the voluntariness of a participatory wellness program.  As such, employers cannot afford to ignore them.  Below are some key questions and answers about the proposed measures.  

Q. 1:  What wellness programs are subject to the de minimis incentive limit?

A. 1: “Participatory” wellness programs would be subject to the de minimis limit, if it is published in final form.  A participatory wellness program requires no physical activity or health outcome in order to receive the incentive.  For instance, completion of a Health Risk Assessment (HRA) or undergoing biometric testing, with no requirement to improve the results, are examples of participatory wellness activities.  

Q. 2:  What types of incentives qualify as de minimis?

A. 2:   The proposed regulations give the example of a water bottle or gift card of modest value, and indicate that premium surcharges of $50 per month ($600 per year), an annual gym membership, or airline tickets would be more than de minimis.  If a water bottle suffices, presumably other low-cost items  such as a t-shirt, towel, or stress ball would also work.  “Modest value” gift cards probably mean $10 or $15 or less.  See Q&A 7 below, re tax treatment of de minimis incentives.

Q. 3:  What is the safe harbor exception to the de minimis incentive limit?

A. 3:   An incentive may be more than de minimis under a health-contingent wellness program that is part of, or that qualifies as a group health plan.  Let’s break that down.  “Health-contingent” means that the program conditions the reward either on a physical activity (such as completing a walking program), or on satisfying a standard related to a health factor, such as reducing blood pressure or cholesterol levels.   As for “comprising part of, or qualifying as a group health plan,” the proposed regulations list four factors that, if present, may indicate when this is the case:  (1) the wellness program is offered only to employees who are enrolled in an employer-sponsored health plan; (2) the wellness incentive is tied to cost-sharing or premium reductions (or increases) under the employer’s group health plan; (3) the wellness program is offered by a vendor that has contracted with the employer group health plan (or, in the case of an insured plan, with the insurance carrier); and (4) the wellness program is a “term of coverage” under the group health plan.  It is not very clear what is meant by the last criteria.  It may mean that the terms of the wellness program are set forth in the group health plan documentation, for instance.  More clarification from EEOC would be welcome.

Q. 4:  What is an example of a wellness program that can continue to use a higher incentive under the safe harbor?  

A. 4:  An example of a wellness program that might qualify for the safe harbor exception, and be able to offer a more than de minimis incentive, would be a biometric testing program that awards a premium reduction to participants who successfully lower their blood pressure and cholesterol readings, that is administered by a vendor of the health insurer that provides the coverage, and under which participation is limited to employees who participate in the group health plan.  Another example would be a program of walking or exercise, that also meets the other criteria listed.  Note also that the de minimis rule, and EEOC regulations in general, do not apply to wellness programs that do not include disability-related questions or medical examinations, so would not apply to wellness programs that provide general health and educational information, such as classes on nutrition or smoking cessation.  Note also that both HIPAA and EEOC regulations require that an alternative means of earning a wellness incentive be made available to persons who are prevented from meeting (or attempting to meet) the original criteria due to medical conditions or issues.

Q. 5:  What is the maximum incentive under the safe harbor exception?

A .5:  Under EEOC regulations, the maximum incentive that may be offered under a health-contingent wellness program is an amount equal to 30% of the individual premium under the most affordable group health plan option, or 50% if the program is designed to reduce or stop tobacco use.   This is consistent with HIPAA regulations; note however that HIPAA regulations would not impose any maximum cap on incentives to take part in participatory wellness programs.

Q. 6:  I want to offer employees a PTO day if they get a COVID-19 vaccination.  Am I subject to the de minimis incentive limit?

A. 6:  Probably not.  Vaccination programs are participatory programs for purposes of the proposed EEOC regulations.  And a day’s wages, even at minimum wage, is more than a de minimis amount.  However, if you are offering a PTO day to employees who seek out their own COVID-19 vaccine from a third party, you are not administering a medical exam (i.e., the vaccine) for purposes of the EEOC voluntariness requirement and arguably the de minimis exception would not apply.   Conversely, if the vaccinations are offered through a clinic your company sponsors, then arguably the de minimis rule applies.   This a fact-intensive inquiry, however, so get individualized legal advice regarding the specific facts of your situation.

Q. 7:  Must I treat de minimis incentives as taxable income to my employees?  

A. 7:  That depends upon whether the item qualifies as a de minimis fringe benefit under Internal Revenue Code Section 132(a)(4).  This may be the case for a water bottle, t-shirt, and similar small items.  With regard to gift cards, however, note that he IRS has taken the position that gift cards that are redeemable for general merchandise, even if of nominal value, are treated as a cash equivalent and are taxable.  

Q. 8:  Do the EEOC’s proposed wellness regulations make any other changes?

A. 8:  They suggest potential changes to notice requirements.  The 2016 EEOC wellness regulations require issuance of a written notice that describes the types of medical information that the wellness program will collect and the purposes for which it will be used.  In the proposed regulations the EEOC opines that the notice no longer is necessary under the de minimis incentive standard, but requests public comment on whether the notice should be required nonetheless.  

Q. 9:  What do the proposed GINA rules require?

A. 9:  Proposed regulations under the Genetic Information Nondisclosure Act accompanied the wellness regulations. The proposed regulations under GINA would limit, to a de minimis amount, wellness incentives offered for information about manifestation of a disease or disorder in all family members – not just spouses, as was the case in 2016 GINA regulations.  The regulations continue prior prohibitions, under GINA, of questioning an employee about the employee’s family medical history or other genetic information.

Q. 10.  Is there a backstory to the EEOC’s de minimis incentive limit? 

A. 10:  How much time to do you have?   It all starts with the Americans with Disabilities Act, which permits employers to make disability-related inquiries (such as are set forth in an HRA) or require medical examinations (such as biometric testing) as part of employee health programs, so long as employees’ participation is “voluntary.”  42 U.S.C. § 12112(d)(4)(A).  Initially the EEOC simply stated that “voluntary” meant that participation was neither required, nor penalized.  A number of years went by. In 2014, the EEOC sued several employers, including Honeywell, on the grounds that their participatory wellness programs were not voluntary because the incentives were too large (one program conditioned payment of 100% of the monthly premium amount on participation in biometric testing and completion of the HRA).  These suits largely failed, and in final regulations published in 2016, the EEOC defined “voluntary” according to the 30% and 50% limits described above.  The AARP sued the EEOC over the regulations, arguing in relevant part that the 30% limit was arbitrary and too high.  As a result of the litigation, the EEOC ended up withdrawing the incentive portion of the regulations, and since that time (December 2018), the question of what constituted a “voluntary” wellness incentive under the ADA has remained open.  As mentioned the proposed regulations may be modified by the Biden Administration; certainly guidance that lessens the now considerable permissible incentive gap between de minimis, on the one hand, and approximately $200 per month, on the other, would be welcome.

Note: The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation.

(c) 2021 Christine P. Roberts, all rights reserved.

Photo Credit: Hello I’m Nik, Unsplash

COVID-19 Vaccines: Employer Mandate & Incentive Issues UPDATED

Regular readers of this blog know that I limit my practice to ERISA and employee benefit issues. However, my partner Paul Wilcox has stepped in as a guest co-author to address the employment law issues around COVID-19 vaccines and your workforce (Q&A 1 – 4, below). I follow up below with a few questions on using wellness incentives to encourage employees to get vaccinated. This updated post reflects EEOC guidance on COVID-19 vaccinations that was issued on December 16, 2020.

Q.1: Now that COVID-19 vaccines are coming, can I require employees be vaccinated as a condition of employment?
A.1: The Equal Employment Opportunity Commission (EEOC) has recently issued guidance indicating that requiring vaccination of employees is generally permissible. However, the EEOC also says that employer must consider accommodation of disabilities and sincerely held religious beliefs that are inconsistent with vaccination.  Additionally, some commentators have questioned whether the fact that the current COVID-19 vaccine was approved by the FDA on an Emergency Use Authorization (EUA) might limit the employer’s authority to mandate vaccination.  Whether there is any merit to that argument has yet to be resolved, but the EEOC guidance indicating the mandating vaccination is generally permissible mentions the EUA status of the current vaccine but says nothing that directly indicates that EUA authorization by the FDA limits the right of employers to require vaccination.  This is an open question.

Q.2: Do we have to treat all employee objections to vaccination equally or do some types of objections trigger legal duties of accommodation, etc.?
Q.2: The law requires employers to consider reasonable accommodations for persons with disabilities who may be particularly impacted by vaccination and for people with religious beliefs that are inconsistent with vaccination. Whether an accommodation of a disability or religious belief is required depends on the circumstances, but the employer generally must consider the issue even if the ultimate answer is that the requested accommodation will not be granted. In its recent guidance on mandatory vaccinations, the EEOC noted that, however, accommodations which would result in a direct risk of harm to other persons are not required.

Q.3: Will I get in trouble if I only require some employees, such as customer-facing workers, get vaccinated but not other employee groups?
A.3: No, not necessarily. Making distinctions between employees based on job duties is generally permissible.

Q.4: Will my company face potential liability if an employee has a bad reaction to the vaccination? Does it matter that the current vaccine was approved by the FDA on an EUA?
A.4: The law also does not provide a clear answer to this question, although the general answer is that employer liability for work-related injuries is confined to the workers’ compensation system, so any liability might be covered by workers’ compensation insurance. Workers’ compensation is a “no fault” system, meaning that whether the injury was caused by negligence or in the absence of negligence is not a relevant issue.

Q.5: Can I offer wellness program incentives to encourage employees to get a COVID-19 vaccine?
A.5: Yes. The incentive could take the form of a cash reward or gift card, for instance. Note that cash and cash equivalent rewards are taxable to employees and are generally compensation counted under 401(k) and other retirement plans.

Q:6: Is there a dollar limit on the incentive I could offer?
A.6: Not a flat dollar amount or percentage, but the incentive must be reasonable in amount. As Paul noted above, vaccinations are characterized as medical examinations and therefore you must abide by ADA regulations governing wellness plans. Those regulations are aimed at insuring, among other things, that employee participation in work-related wellness programs that include medical examinations, such as health risk assessments, is voluntary on the part of the employee. In past years the EEOC has sued employers whose wellness rewards it deemed to be excessive. On January 7, 2021, the EEOC issued proposed regulations that would permit only de minimis incentives for participatory wellness programs such as a vaccination program. Examples of de minimis incentives include a water bottle or small gift card. The regulations will be reviewed by the Biden Administration and may not be finalized as currently drafted, but employers whose wellness programs include COVID-19 vaccinations should consult with counsel as to whether or not they should limit incentives to de minimis amounts or items. Employers that are offering an incentive to employees to obtain COVID-19 vaccinations from public agencies or third party vendors who are not part of the employer’s wellness program or group health plan may not be subject to the de minimis incentive limitation, but should confirm with independent legal advice.

Q.7: If employees have a disability that makes the vaccination inappropriate for them, do we still need to offer a way for them to earn the vaccination incentive?
A.7: Yes. Reasonable accommodation provisions in the ADA wellness regulations remain in effect, such that you must modify or adjust your wellness program for persons with disabilities that make the COVID-19 vaccine medically inadvisable. Examples might be virtual/remote attendance at a class on COVI9-19 mitigation measures such as mask wearing, hand washing, and social distancing.

Q.8: Do I have to notify employees about the special incentive offered for getting a COVID-19 vaccine?
Q.8: That is not clear at the present time. Notification duties under ADA wellness regulations form 2016 would have required a notice be provided when employees’ medical information is gathered, such as in a vaccination process. The 2016 regulations required that the notice be written in a language reasonably likely to be understood by the participating employees, describe the type of information that will be gathered, and describe the confidentiality measures that are in place to protect this information. In its proposed 2021 wellness regulations the EEOC waives the notice requirement as unnecessary when the de minimis incentive applies. Employers with participatory wellness programs that would be subject to the de minimis incentive limit, if enforced, should consult counsel as to whether or not to comply with the notice requirements from the 2016 EEOC wellness regulations.

Note: The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation.

(c) 2021 Christine P. Roberts and Paul K. Wilcox, all rights reserved.

Photo Credit: Top photo: Emin Baycan, Unsplash

It’s (Summer) Time for Wellness Plan Re-Design

Now that summer is here, there are only a few more months until benefit plan open enrollment for 2019 gets underway. Employers who maintain a wellness program that includes biometric testing, health risk assessments (HRAs), or medical questionnaires need to think now about how they will design their plan in the new year, as changes to the rules governing these wellness features go into effect.  This post outlines the changes and discusses the new design landscape for 2019.

What are the Changes?

During 2017 and 2018, final regulations under the Americans with Disabilities Act (ADA) limit the financial incentive employers may offer in exchange for participating in biometric testing, HRAs or medical questionnaires, to an amount equal to 30% of the cost of individual coverage (both the employee and employer portions.) The same limit applies to surcharges or penalties for not taking part.  Companion regulations under Title II of the Genetic Information Nondiscrimination Act (GINA) apply the same cap to completion of an HRA or medical questionnaire by an employee’s spouse, because manifestation of a disease or disorder in a family member comprises genetic information on the employee.  The ADA regulations also disallow the 20% additional incentive tied to tobacco use, if the wellness program includes a blood test for nicotine or cotinine.  The ADA and Title II of GINA apply to employers with 15 or more employees.   We discussed the ADA and GINA rules in a prior post.

The American Association of Retired Persons (AARP) challenged the 30% incentive limit in court on the grounds that the Equal Employment Opportunity Commission (EEOC) failed to prove that this cap was necessary in order for participation in the biometric testing or health risk assessment (HRA) to be “voluntary” and not coercive, which is an ADA requirement.

A federal court agreed with the AARP, and vacated the 30% incentive cap effective January 1, 2019.  (Other provisions of the ADA regulations, including notification and confidentiality rules, remain in effect.)  The court also lifted a requirement that the EEOC publish new proposed regulations on the voluntary standard by August 31, 2018.   The EEOC may issue regulations in the future (and could appeal the court decision), but wellness program design for 2019 must get underway in the absence of clear guidance on the voluntariness standard.

2019 Design Landscape

The chart below illustrates the wellness rule landscape effective January 1, 2019 for employers that are subject to the ADA. Wellness regulations under HIPAA and the ACA will continue to apply, but they do not impose any limit on incentives (or penalties) for biometric testing or HRAs that are “participation only” i.e., that do not require physical activity, or specific health outcomes.

Despite the vacated EEOC standard, employers should exercise caution in setting financial incentives for biometric testing, HRAs or medical questionnaires.  Even prior to issuing regulations, the EEOC had challenged wellness programs in several court actions, ranging from a program that conditioned biometric testing and completion of an HRA on a $20 per paycheck surcharge, to one that conditioned 100% of the premium cost on taking part in an HRA. Although the cases generally were resolved in favor of the employer, they make clear that EEOC may view even modest incentives as failing the voluntary standard.

Employers should also make sure that their wellness program follows up after gathering health data through biometric testing, HRAs or medical questionnaires, with information, advice, or programs targeted at health risks.  A wellness program that fails to do so would not qualify as an employee health program under the ADA and the voluntary wellness program exceptions would not be available.

So what are some options for 2019? There are several design “safe harbors” that do not trigger the ADA voluntariness standard:

1) Eliminating biometric testing/HRAs/medical questionnaires altogether.

2) Keeping biometric testing/HRAs/medical questionnaires, but removing any financial incentive or penalty that applied to them.

3) Offering smoking cessation programs that request self-disclosure as a tobacco user (no blood test for nicotine, cotinine).

Limiting financial incentives/penalties for biometric testing/HRAs/medical questionnaires to an amount that does not exceed 10 – 15% of the individual premium is another option. This range is just high enough to encourage participation, but it is under 20%.  In AARP v. EEOC, the court’s August 2017 ruling on summary judgment cited a RAND study noting that “high powered” incentives of 20% or more may place a disproportionate burden on lower-paid employees.

What about different incentive levels for different groups of employees? First, this may be administratively impractical, and second, it might run afoul of the HIPAA/ACA requirement that the full wellness incentive or reward be made available to all “similarly situated” individuals.  Groupings of employees for this purpose must be based on bona fide, employment-based classifications that are consistent with the employer’s usual business practice, such as between full-time and part-time employees, hourly and salaried, different lengths of employment, or different geographic locations.   For many employers, these criteria may not always neatly overlap with different compensation levels.

In sum, employers who do not wish to eliminate biometric testing and HRAs/medical questionnaires from their wellness programs should anticipate living with some uncertainty about whether their financial incentives meet ADA standards.   Engaging in careful planning in the coming weeks, together with benefit advisors and legal counsel, can help keep the risk to a minimum.

Worker Inactivity: the Next Wellness Frontier?

Researchers and some employers are using technology to measure the incidence and health impact of worker inactivity due to long periods behind the wheel of a car, or in front of a computer.   This article from the online publication MIT Technology Review covers some of the measuring methods in use, including thumb-sized activity monitors called “Fitbits,” and accelerometers and inclinometers to measure active versus sedentary work time. Use of the latter two devices is teamed with blood chemistry analysis to determine the link between sedentary behavior and long-term health conditions including diabetes, high blood pressure and elevated blood cholesterol. The article also describes a few ways employers are trying to change office landscapes to encourage more physical activity, including testing of a $1,000 worktable that adjusts to workers’ standing or seated positions. (My thanks to Dave Baker for circulating the article in BenefitsLink Health & Welfare Plans Newsletter for August 15, 2011.)

It appears to be medically beyond dispute that protracted sedentary behavior takes a long-term toll on employee health, and that integrating moderate activity in the workplace may reduce the incidence of expensive chronic health conditions. I can’t help but remark, however, on the similarities between the studies described in the MIT articles, and author Gary Shteyngart’s vision of the workplace in a dystopian near-future, in his latest novel Super Sad True Love Story (Random House, 2010). In that future, employees’ blood chemistry levels are posted on a repurposed train schedule board, and co-workers jibe one another about less-than-stellar readings:

“Instead of the arrivi and partenze times of trains pulling in and out of Florence or Milan, the flip board displayed the names of Post-Human Services employees, along with the results of our latest physicals, our methylation and homocysteine levels, our testosterone and estrogen, our fasting insulin and triglycerides, and, most important, our ‘mood + stress indicators,’ which were always supposed to read ‘positive/playful/ready to contribute’ but which, with enough input from competitive co-workers, could be changed to ‘one moody betch today’ or ‘not a team playa this month.’”

It is interesting to contrast this scenario with current conditions under which employers, through wellness programs, may collect employees’ biometrics and other health information. The laws governing an employer’s ability to do so, particularly in exchange for cash incentives, are evolving on a number of different fronts, including federal (and state) laws governing disability discrimination in the workplace, privacy of health information, and privacy of genetic information including family histories. (The applicable federal laws are, respectively, the Americans with Disabilities Act of 1990 (“ADA”); the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the Genetic Information Nondiscrimination Act of 2008 (“GINA”).) Some basic parameters, sourced in regulations under these laws and in other EEOC guidance, are as follows:
• Employers may provide any level of financial incentive in connection with “participation-only” wellness programs that do not require achievement of certain results (such as lowered BMI or blood pressure).
• Financial incentives to participate in results-based wellness programs may not exceed 20% of the applicable premium (this percentage will rise to 30% under PPACA and possibly may increase to 50%).
• Results-based wellness programs must provide alternative options for persons whose disabilities or other health conditions keep them from achieving program goals.
• Participation in a “voluntary” wellness program that obtains medical data is not a violation of the ADA provided that employers maintain the data as confidential and do not misuse it.
• The EEOC has defined “voluntary” as neither requiring employees to participate nor penalizing employees for non-participation. It has also stated that financial inducements that are within the 20% rule are deemed to be “voluntary.”
• Disability-related questions must be “job related and consistent with business necessity” to satisfy the ADA, and generalized questions on various diseases that are typical of health risk assessments (HRAs) do not meet this standard.
• With specific regard to genetic information, including family history, the following rules apply:
o No financial inducement may be offered when such information is sought, nor may such information be collected “prior to or in connection with” enrollment in a group health plan. (The combined effect of these rules means that HRAs must either avoid any genetic information or family history inquiries altogether, or must be taken only after enrollment and without any financial incentive.)
o Further, health risk assessments should contain a disclaimer to discourage employees from volunteering family history or other genetic information in response to HRA questions. Final GINA regulations contain a template for the disclaimer.
o Employers must follow procedural requirements for the collection of genetic information: participants must grant prior, written authorization to the disclosure and the authorization must describe both the information being sought and the safeguards that are in place to protect against unlawful wellness programs.
• Employers may not receive any individualized health data from wellness providers, only aggregate information. However participant and their health care providers may receive individualized data resulting from wellness programs.
Most recently, a June 2011 opinion letter by EEOC Legal Counsel Peggy R. Mastroianni responded to two wellness program queries: (1) whether financial incentives for wellness program participation violated the ADA or GINA, (refused to take a position vis-a-vis ADA violation, and “Yes” re: GINA violation) and (2) whether family medical history provided voluntarily could be used to guide employees into disease management programs. In response to the latter question, the opinion letter reiterates that no financial incentive may be offered in exchange for genetic information, but that an employer that lawfully obtains genetic information (e.g., without a financial inducement, after enrollment in a health plan, and disclosed only on an aggregate basis) may provide a financial incentive to guide employees into disease management programs. You can read the opinion letter here. You can buy Gary Shteyngart’s novel many places, including local bookstores, and here.

DOMA Repeal Bill Introduced by House Democrats

Only a few weeks after the Justice Department announced withdrawal of its support for the federal Defense of Marriage Act, legislation to repeal it was introduced in the House of Representatives. Specifically, on March 16, 2011 Rep. Jerrold Nadler (D. N.Y.) re-introduced the Respect for Marriage Act, which he first sponsored in 2009. The legislation has the support of over 100 co-sponsors in the House, including four openly gay members of Congress. A version of the bill shortly is expected to be introduced in the Senate by Sen. Dianne Feinstein (D. California). This will be the first time that the Senate has entertained a bill to repeal DOMA, which since 1996 has limited the rights and protections of federal laws to legally married, opposite sex spouses.

Prior to DOMA, marital status was decided at the state level, and if the Respect for Marriage Act becomes law this again will be the case. If a same-sex couple legally was married in a state that permits such unions, such as Massachusetts, the couple would have equal treatment under federal law as an opposite-sex married couple. Couples who are registered domestic partners or in civil unions would not have spousal status for federal purposes unless they also legally were married under state law. Lamda Legal prepared a concise summary of the likely impact of the Respect for Marriage Act; you can read that summary here.

DOJ Deems DOMA Unconstitutional

The Deparment of Justice officially has taken the position that the federal Defense of Marriage Act (DOMA) violates equal protection guarantees under the Fifth Amendment. As set forth in a letter to Congress from Attorney General Eric Holder, which reportedly reflects the President’s own thinking on the subject, the Administration no longer supports the reasoning and arguments formerly used to uphold DOMA. The DOMA was enacted under President Clinton in 1996 (before “L’Affaire Lewinsky,” for those who are counting.) The DOMA defines a legal spouse, for federal law purposes, only as a lawfully married member of the opposite sex.

As a result of DOMA, registered domestic partners do not have the same status and rights as opposite sex spouses under ERISA retirement and health plans, under federal estate tax laws, and in a variety of other legal settings. As a simple example, a surviving registered domestic partner does not have the same ability as an opposite sex surviving spouse to treat an IRA inherited from a decedent spouse as the surviving partner’s own account, which greatly increases the stretch-out distribution capability of the account. This “spousal election” right remains limited to opposite sex spouses. Although the tax laws recently changed to allow non-spouse beneficiaries (including domestic partners) the ability to roll over amounts from an inherited IRA, the rollover right simply does not permit the same stretchout options as does the spousal election.

In California, registered domestic partners (as defined by Section 297 et seq. of the California Family Code) do have the same legal status and rights as opposite sex spouses for all purposes under California law. This means that benefits such as group health insurance that an employee provides to his or her registered domestic partner are treated at the state tax level just as are any other benefits provided to a dependent, and do not result in imputed California income to the employee. However unless the domestic partner meets the federal definition of a dependent (as set forth in IRC Section 152), provision of benefits to him or her will cause the employee to experience imputed income at the federal level. It is rare for a domestic partner to meet the dependency test under Section 152 as it requires they receive more than half of their financial support from the employee partner, and with regard to non-health benefit plans also imposes a cap on compensation that is extremely low.

Employers in states like California have long been burdened with the process of tracking and assigning a value to benefits provided to domestic partners, for federal tax compliance. Now, in a whipsaw effect, they are required to do just the opposite (track imputed state income) with regard to group health benefits provided to dependent children up to age 26, as a result of expanded coverage to this group under PPACA. Fortunately California likely will bring its tax laws into conformity with PPACA in the near future, as AB 36 wends its way through Sacramento.

The path to repeal of DOMA likely will be longer and more fraught with controversy because of the “hot button” nature of the issue at the national level. However, there have been less direct attempts to address the problem nationally in the past. The “Tax Equity for Domestic Partners and Health Plan Beneficiaries Act” was introduced in Congress by Republican Senator Gordon Smith of Oregon, but never moved past the committee level. It is possible that as DOMA is reexamined in coming months, even factions that disagree on the moral/religious issues can reach agreement that parity in tax treatment between spouses and domestic partners is warranted at the federal level. I will continue to track this issue as it develops.