COMPTROLLER'S SEAL STATE OF CONNECTICUT

STATE OF CONNECTICUT

NANCY WYMAN
COMPTROLLER
OFFICE OF THE STATE COMPTROLLER
55 ELM STREET
HARTFORD, CONNECTICUT 06106-1775
MARK OJAKIAN
DEPUTY COMPTROLLER

COMPTROLLER'S MEMORANDUM 2009 - 03

February 20, 2009

TO THE HEADS OF ALL STATE AGENCIES

ATTENTION: Personnel and Payroll Officers
SUBJECT: State Employee Health Plan - Fair Market Value for Same-Sex Marriage, Civil Unions and Domestic Partner Benefits

I) INTRODUCTION

The Internal Revenue Service recently provided clarification regarding the tax treatment of dependents and other individuals who may be eligible for coverage in the State Employee Health Plan under the Internal Revenue Code and the regulations promulgated thereunder. The Office of the State Comptroller employed this treatment in establishing the rules for determining the Fair Market Value (FMV) of non-qualified dependents under Public Act 08-147 (see Comptroller's Memorandum 2008-35A). This Memorandum explains how the FMV will be implemented under the State of Connecticut Employee Health Plan for Same-Sex Marriage and Civil Unions effective January 1, 2009. FMV with regard to Domestic Partners arrangements will be addressed in a separate section later in this Memorandum.

II) DISCUSSION

A. Same Sex marriages and Civil Union Partnerships
The State of Connecticut permits same-sex couples to enter into marriage or civil unions, which includes favorable treatment under state tax law. Federal tax laws do not recognize these relationships, therefore, the federal tax treatment of a same sex spouse or civil union partner differs from the state tax treatment.
When an employer provides health insurance coverage to a non-qualifying same-sex spouse or civil union partner the federal government requires that the employer include the Fair Market Value (FMV) of that benefit in the employee's wages. The FMV is subject to federal income and payroll taxes such as FICA, and will be reported as income on the employee's W-2. Accordingly, additional taxes must be deducted from the paycheck of each employee based on FMV of the health benefits.
For retired employees who have a non-qualifying same-sex spouse, civil union partner or Domestic Partner enrolled in health insurance, the FMV will be added to their 1099R. The retiree may request that the Retirement Services Division adjust the amount of tax withholding from their retirement check. Retired employees with questions on these issues should be referred to the Retirement Health Insurance Unit at (860) 702-3533.
The Office of the State Comptroller does not provide tax advice to individual employees or retirees. Employees with questions as to the tax impact of the inclusion of the Fair Market Value of health benefits should be advised to consult their personal tax advisor. The Fair Market Value of the health plans for 2008-2009 are shown in Table II of the Attachment.
The process for enrolling a same-sex spouse or civil union partner has not changed. The employee submits the appropriate documentation to their agency personnel/payroll office. The Agency forwards the supporting documentation along with a cover memo to the Healthcare Policy & Benefit Services Division's Central Benefits Unit.
B. Domestic Partnerships
When an employer provides health insurance coverage to a non-qualifying Domestic Partner both the state and federal government requires that the employer include the Fair Market Value (FMV) of that benefit in the employee's wages. Domestic Partner relationships do not receive preferential treatment under federal or state tax law. Therefore FMV for Domestic Partners is subject not only to all federal income and payroll taxes but also all applicable state income and payroll taxes. In short, the FMV of the health benefit will be reported as wage income on the employee's W-2 and will be taxed accordingly under both federal and state tax law.

Please be reminded that while same sex domestic partners and eligible dependent children of the domestic partner are currently eligible for coverage under the State's health benefit plan, this benefit will end effective November 30, 2009. Additional information regarding Domestic Partner benefits is provided in the Retirement & Benefit Services Division's Memorandum dated November 26, 2008.

IV) CONCLUSION

Agency personnel and payroll representatives with questions may contact the Central Benefits Unit by email osc.benefitcorrections@po.state.ct.us , or at (860) 702-3535. Please do not refer employees or retirees to this number, as all calls from individual employees will be referred back to the employing agency.

Very truly yours,

Nancy Wyman
State Comptroller

NW:TW
Attachment

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