On March 12, 2013, the Colorado legislature passed the Colorado Civil Union Act and it is expected to be signed soon by Governor John Hickenlooper. Colorado, like many other states, recognize either same-sex marriage (most recently Maine, Maryland, Washington), domestic partnerships or civil unions. As with those other states, the law impacts health benefits, specifically the state income taxation for health coverage offered to civil union partners.
Once signed, the Act will become effective May 1, 2013, with certain provisions specific to health and life insurance policies not effective until January 1, 2014. The Act provides that civil unions between same-sex or opposite-sex couples provide the same rights, protections and benefits of marriage, but acknowledges that the union is not a marriage. Colorado’s constitution limits marriage to a union of one man and one woman.
Although “spouse” is still defined as two persons who are married, the Act provides that a party to a civil union “is included in any definition or use of the term … spouse.” As a result, life and health insurance policies that are issued or renewed in Colorado on or after January 1, 2014 will be required to include a civil union party as a dependent.
For employers that already offer or will offer health coverage to domestic partners or civil union partners, the Act is surprisingly clear about taxation of health coverage. Colorado tax law terms currently have the same meaning as the federal tax terms – and federal income tax does not recognize same-sex civil unions (although the Defense of Marriage Act is currently under review by the United States Supreme Court). (For a discussion of opposite-sex civil unions and informal, non-binding, guidance from the IRS, see our post about Illinois.) The Act is clear that, until other action is taken by the legislature, Colorado will continue to follow the federal tax rules. In other words, same-sex civil union partners cannot file joint tax returns. As a result, same-sex civil union partners in Colorado will have imputed income for purposes of state income tax (unless the partner is certified as a tax dependent). There should be no changes to payroll systems.
In similar situations in both New York and Illinois though, the states eventually took action to eliminate state income tax on same-sex spouses (New York) and same-sex civil union partners (Illinois).
Also on March 12, 2013, Committees in both the Minnesota House and Senate passed bills permitting same-sex marriage. The bills will move to the full Minnesota House and Senate, who will take up the bills after focusing on the state’s budget, which could delay progress for several weeks. If passed, Minnesota governor Mark Dayton has stated he will sign the bill that would permit same-sex marriages to begin August 1, 2013.
If you offer domestic partner, civil union or same-sex spouse benefits, you should review your documentation for potential updates.