Stanford Hospital Error Creates Tax Issue for Gay Couple ⇢

I have personally encountered this burden and its killed my bank account at tax time.  It is also one of the issues that can help those who don’t really understand how not having marriage equality can directly harm gay & lesbian couples. 

Send this out to those you know don’t understand the real impact of DOMA.  A lot is at stake for lesbian and gay couples, including hell of a lot of additional money paid out. (ps civil unions do not fix this because the law specifically refers to married couples…  separate is still not equal)

Most of us pay income taxes because we know we have to. But what happens when you fail to pay an obscure tax that you never heard of — and that your employer should have told you about?

That’s the predicament that Thomas Satterwhite, a plastic and reconstructive surgery resident at Stanford Hospital & Clinics, and his partner, Harald Frohlich, a kindergarten teacher at the San Francisco School, have found themselves in.

Since Stanford generously offers health insurance to its employees and their families for free, Mr. Frohlich said he decided to use its health coverage, which the hospital also extends to domestic partners. Unlike married couples, those who use domestic partner coverage must pay taxes on the value of that coverage unless the partner is considered a dependent. If same-sex couples were allowed to marry, they could avoid the tax like their heterosexual counterparts.

Employers who offer domestic partner insurance usually take care of the tax issue by including the “imputed income” on their employees’ paychecks, and the appropriate taxes are withheld. Or, as an increasing number of employers have chosen to do, they reimburse employees for those extra costs.

But Stanford never properly accounted for the income. Nor is it the first employer to run into this issue. Yale University made a similar error earlier this year that affected 61 employees. 

Dr. Satterwhite received a letter in April from the hospital’s human resources department, which said it had discovered the error during a system audit. “We were not aware there was a tax when you are a domestic partner,” Mr. Frohlich said. “And then we got that letter, which was a big surprise.”

By his estimation, the hospital didn’t include the taxes, of about $270 a month, for nearly three years. As a result, he said his partner would have to amend his tax returns for those years, and will probably owe $7,000 to $8,000 in back taxes, plus any penalties or interest. If the couple had known about the extra taxes, Mr. Frohlich said, he would have used the insurance provided by his own employer.

The couple wrote a letter to the hospital’s benefits manager saying they believe that Stanford should cover the costs because it didn’t properly inform them from the start. At the very least, the letter said, they would like Stanford to pay for the costs associated with amending Dr. Satterwhite’s tax returns for the past three years, plus any potential penalties or interest.

Stanford declined to say whether this issue was isolated to the one couple, or if the problem was more widespread. “Our benefit program here for domestic partners provides the same level of coverage as it does for spouses,” said Gary Migdol, a spokesman for Stanford Hospital & Clinics. “Due to confidentiality issues, we cannot comment on a specific employee. However, if an employee raises concerns about an issue related to his/her benefit package, it is investigated thoroughly and appropriate action is taken.”

Do you know of any other employees at Stanford Hospital employees or elsewhere who have encountered this problem? And what do you think Stanford should do?

Notes

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