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Civil union pairs might face taxes

Federal laws could mean fees on health benefits for couples who take advantage of House Bill 444

By Richard Borreca

LAST UPDATED: 2:55 a.m. HST, Jul 7, 2010

The civil unions bill before the governor, should it take effect, may mean people who take advantage of the law would owe more taxes.

Private employers investigating the possible effects of House Bill 444 say it may result in an increased tax burden because federal laws would tax health benefits given to partners in civil unions.

Health insurance coverage provided by a company to workers, a spouse and dependents is not subject to federal income tax.

But according to employment experts, employer-sponsored health coverage provided to a partner in a civil union would be treated as "imputed taxable income."

"It is really a federal issue and the states don't have any control," says Rep. Blake Oshiro (D, Aiea-Halawa).

"The bottom line is it is an issue of unfairness, hopefully it will be addressed, I don't look at the issue as one of economic benefits," Oshiro, the bill's sponsor, said yesterday.

It is not known how many people would use a civil union law, but Hawaii already has a reciprocal benefits law. Couples wishing to enroll as reciprocal beneficiaries must register with the state Health Department.

Janice Okubo, Health Department spokeswoman, said since 1997 a total of 1,747 couples have been given reciprocal benefit status.

While Hawaii can structure its own tax laws, the federal law does not recognize same-sex marriage or civil unions as legal unions, according to a review prepared by the Hawaii Employers Council.


Some of the major ways the proposed civil unions bill would change Hawaii employment laws:

» Hawaii Family Leave: Employees in companies with 100 or more workers will be able to take up to four weeks of family leave per year to care for a civil union partner.

» Workers Compensation: Hawaii includes provisions regarding payments of benefits to spouses of deceased employees. Benefits would apply to surviving partners in civil unions.

» Wages of deceased workers: Employers may pay the final wages up to $2,000 due a deceased employee to the surviving spouse, reciprocal beneficiary or adult child. This would also apply to civil union partners.

» Unemployment Insurance: Hawaii unemployment law allows individuals to collect unemployment insurance if they voluntarily leave a job for "compelling family reasons," including a spouse's transfer to a location from which it is impractical for the individual to commute to work. This would also apply to a civil union partner's job relocation.

Source: Hawaii Employers Council

"Rights and obligations relating to spouses or husbands and wives under federal employment and tax laws are generally not altered by HB 444 because of the federal Defense of Marriage Act," the Employers Council said in a memo to members.

Debbie Padello, director of human resources and client services at Altres, said if a company offers medical insurance to families or a worker's spouse, they would be required to offer medical insurance to a civil union partner.

"They would have to pick up the cost of that premium and it would be an out-of-pocket expense that you would see right away," Padello said. "There could be a financial impact."

Supporters of the bill say the civil union measure is intended to provide the same rights, benefits, protections and responsibilities of spouses in a marriage to partners in a civl union.

A civil union would be recognized for any resident of Hawaii 18 or older who is not related and not married. Advocates say the bill gives more benefits than is permitted under reciprocal benefits.

Jack Schneider, president of JS Services, an employee leasing service, says the medical insurance change would be the only major change.

"There is a benefit if both partners cannot get medical insurance on their own, " Schneider said.

"I don't think there is an economic component to it. I think it is an a ethical or moral or hot-button issue," Schneider said.

Lowell Kalapa, president of the private Hawaii Tax Foundation, says the bill adds an additional complexity because it was first written in 2009 and says it "takes effect Jan. 1, 2010."

Senate supporters, fearing the bill would not survive another challenge, didn't want to vote on amending it a second time so they left in the retroactive date. The state House this year also kept the same date.

"So if a couple is denied benefits now, they might be able to sue the employer," Kalapa warned. Supporters, however, argue that it is unlikely anyone would fit those circumstances.

Because no civil unions would have been enacted until the law takes effect, only civil unions in other jurisdictions or other countries would be recognized immediately.


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