BILL ANALYSIS Ó
AB 362
Page A
Date of Hearing: May 13, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 362 (Ting) - As Amended: April 2, 2013
SUSPENSE
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income taxes: exclusion: health insurance
SUMMARY : Excludes from state gross income reimbursement
received from an employer for federal income taxes paid by the
employee because federal income tax law does not consider the
employee's same-sex spouse or domestic partner to be the
employee's spouse, including any reimbursement of federal income
taxes paid with respect to those amounts. Specifically, this
bill :
1)Excludes from state gross income reimbursement received from
an employer for federal income taxes paid by the employee
because federal income tax law does not consider the
employee's same-sex spouse or domestic partner to be the
employee's spouse for purposes of the federal exclusion of
employer-provided health coverage.
2)Excludes from state gross income amounts received from an
employer to reimburse the employee for additional federal
income taxes paid as a result of the reimbursement itself.
3)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW :
1)Excludes from federal gross income health insurance provided
by an employer to an employee, an employee's dependents, and
an employee's opposite-sex spouse. Generally, the smaller a
taxpayer's federal gross income, the lower that taxpayer's
federal tax liability will be.
2)Includes in an employee's federal gross income health
insurance provided by an employer to a domestic partner, a
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same-sex spouse, or the domestic partner's or same-sex
spouse's dependents. Generally, the greater a taxpayer's
federal gross income, the greater that taxpayer's federal tax
liability will be.
3)Includes in federal gross income any amount paid by another on
behalf of a taxpayer to discharge a liability of the taxpayer,
including a tax liability. Generally, the greater a
taxpayer's federal gross income, the greater that taxpayer's
federal tax liability will be.
4)Allows a taxpayer to claim a personal exemption for each of
the taxpayer's dependents. Generally, the more dependents a
taxpayer may claim, the lower that taxpayer's federal tax
liability will be.
5)Does not classify the children of a taxpayer's domestic
partner or same-sex spouse as dependents of the taxpayer,
generally. Generally, the fewer dependents a taxpayer may
claim, the greater that taxpayer's federal tax liability will
be.
EXISTING STATE LAW :
1)Excludes from state gross income health insurance provided by
an employer to an employee, an employee's dependents, an
employee's spouse, or an employee's domestic partner,
regardless of whether the employee's spouse or domestic
partner is the same or opposite sex of the employee.
Generally, the smaller a taxpayer's state gross income, the
lower that taxpayer's state tax liability will be.
2)Includes in state gross income any amount paid by another on
behalf of a taxpayer to discharge a liability of the taxpayer,
including a tax liability. Generally, the greater a
taxpayer's state gross income, the greater that taxpayer's
state tax liability will be.
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3)Classifies the children of a taxpayer's domestic partner or
same-sex spouse as dependents of the taxpayer, subject to
certain requirements. Generally, the more dependents a
taxpayer may claim, the lower that taxpayer's state tax
liability will be.
FISCAL EFFECT : The Franchise Tax Board (FTB) has provided the
following revenue estimate:
---------------------------------------------------------------
| |
| For Taxable Years Beginning On or After January 1, 2013 |
| |
| Assumed Enactment After June 30, 2013 |
| |
| |
| ($ in Millions) |
| |
---------------------------------------------------------------
|-------------+----------------+----------------+----------------|
|Fiscal Year | 2013-14 | 2014-15 | 2015-16 |
|-------------+----------------+----------------+----------------|
|Amount | - $1.8 | - $1.2 |- |
| | | |$1.3 |
----------------------------------------------------------------
COMMENTS :
1)The author has provided the following statement in support of
this bill:
At the heart of this issue is a question of fairness for
same-sex couples. The federal policy to tax the health
care benefits of same-sex couples and same-sex headed
families is discriminatory, and the last thing the state of
California should do is make it harder to remedy the
injustice by taxing the reimbursement of these costs. This
legislation will expand on, and strengthen, California's
rich history of non-discrimination.
2)Proponents state:
Unfortunately, because the federal Defense of Marriage Act
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(DOMA) prohibits recognition of same-sex partnerships, the
government treats health insurance benefits provided
through a same-sex spouse's or domestic partner's employer
as income and taxes them. The federal government does not
tax these benefits as income for different-sex couples.
When a California employer provides reimbursement to its
employees for this federal tax, often referred to as a
"gross-up," California taxes this reimbursement as
additional income.
3)Committee Staff Comments:
a) An Illustration of How the Bill Works : The
following discussion illustrates how this bill works
using several hypotheticals and examples.
Many employers pay for health insurance for their
employees and their employees' loved ones. Under federal
and California income tax law, an employee does not pay
taxes for health insurance the employer provides to the
employee's opposite-sex spouse. California and federal
income taxes exclude the opposite-sex spouse's health
insurance from the employee's gross income. This results
in an employee receiving health insurance for the
employee's opposite-sex spouse tax free.
The same is true of same-sex domestic partners and
spouses under California tax law. An employee does not
pay California income taxes for health insurance the
employer provides to the employee's same-sex domestic
partner or spouse. California income taxes exclude the
same-sex spouse's health insurance from the employee's
gross income. Thus, an employee may receive health
insurance for the employee's same-sex spouse without
paying California income taxes.
However, the same cannot be said of federal tax law.
Federal income tax law includes health insurance an
employer provides to an employee's same-sex domestic
partner or spouse in the employee's gross income. While
an employee may receive health insurance for the
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employee's opposite-sex spouse without paying federal
taxes, an employee must pay federal income taxes for
health insurance for the employee's same-sex domestic
partner or spouse.
Some examples will best illustrate the disparate income
tax treatment of health coverage for opposite-sex and
same-sex couples.
Assume an employee is in the 35% federal income tax
bracket and in the 12.3% California income tax bracket in
the 2012 taxable year. The employee has an opposite-sex
spouse. The employer pays for the employee's spouse's
health insurance coverage. The value of the employee's
spouse's coverage is $5,000 per year. Although the
employee receives something of value from the employer -
health insurance worth $5,000 for the employee's spouse -
the employee does not pay any income tax on that amount.
Now imagine a situation identical to the hypothetical
discussed above with one modification. The employee has
a same-sex domestic partner. The employer pays for the
employee's partner's health insurance coverage. As
before, the value of the employee's partner's coverage is
$5,000 per year. The employee is in the 35% federal tax
bracket and in the 12.3% state tax bracket. The employee
must pay $5,000 * 35% = $1,750 in federal taxes for the
employee's domestic partner's health insurance coverage
each year. The employee does not have to pay California
taxes for the health insurance coverage. The employee
has $1,750 less after-tax income than the employee would
if the employee were a member of an opposite-sex
marriage.<1>
------------------------
<1> Note that these examples do not consider other taxes, such
as Social Security (FICA), Medicare, Federal Unemployment Tax
(FUTA), California State Disability Insurance, California State
Unemployment Insurance, California State Employment Training
Tax, local taxes, and others.
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Some employers attempt to offset the burden that federal
tax law imposes upon employees who are members of
same-sex couples. These employers pay the additional tax
an employee must pay for the employee's same-sex domestic
partner's or spouse's health insurance. In other words,
they "gross up" the employee's salary. The goal is to
ensure that an employee who is in a same-sex domestic
partnership or marriage receives the same after-tax
income as the employee would if the employee were in an
opposite-sex marriage.
An example will help illustrate how grossing up works.
Once again, assume an employee is in the 35% federal tax
bracket and in the 12.3% California tax bracket.<2> The
employee has a same-sex partner. The employer pays for
the employee's partner's health insurance coverage. The
value of the employee's partner's coverage is $5,000 per
year. The employee must pay $5,000 * 35% = $1,750 in
federal taxes for the employee's domestic partner's
health insurance coverage each year. The employee does
not have to pay California taxes for the health insurance
coverage.
The employer decides to "gross up" the employee's salary
so that the employee has the same after-tax income as the
employee would if the employee were in an opposite-sex
marriage. To offset the $1,750 in federal income taxes
the employee must pay for the employee's partner's
coverage, the employer pays the federal government $1,750
on the employee's behalf.
This is where things get complicated. The employer is
paying $1,750 of the employee's taxes for the employee.
------------------------
<2> Please note this hypothetical uses these marginal tax rates
because they are the current top marginal tax rates under
federal and California law, respectively. Their use greatly
simplifies the following calculations. They are not meant to
reflect the tax rates of typical couples.
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Federal and state tax law characterizes such a payment as
$1,750 additional income to the employee. Ironically,
paying the employee's taxes increases the employee's
taxes. Specifically, the employee now owes $1,750 *
12.3% = $215.25 more in California taxes and ($1,750 -
$215.25 state tax deduction) * 35% = $537.16 more in
federal taxes.
Note that the increase in the employee's California and
federal taxes, $215.25 + $537.16 = $752.41, is less than
the amount the employer paid on the employee's behalf,
$1,750. The employee is still better off after-tax than
the employee was before, to the extent of the difference
between $1,750 and $752.41, which is $997.59.
Nonetheless, the employee's after-tax income is still
less than that of the employee's straight peers. Namely,
it is $752.41 less. The employer acknowledges this is
still unfair discrimination. It decides to "gross up"
the employee's salary once more. And so, things get yet
more complicated.
To offset the new increase in taxes resulting from the
additional payment of $752.41, the employer would have to
pay California $752.41 * 12.3% = $92.55and the federal
government ($752.41 - $92.55) * 35% = $230.95. Once
more, the employer is paying the employee's taxes for the
employee. This increases the employee's gross income
$92.55 + $230.95 = $323.50. The employee must once again
pay tax on the $323.50 the employer pays on the
employee's behalf.
This spirals, depending upon how many times the employer
chooses to increase the employee's salary. The employer
pays taxes on the employee's behalf and then pays more to
offset the employee's increased tax liability resulting
from the preceding "gross up." Each time, the amount of
additional tax the employee must pay shrinks.
Eventually, the additional tax is less than a cent and
the spiral ends.
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The chart below shows how this spiral works.
------------------------------------------------------------------
| Chart 1 |
------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
| |Additional Income |California Income |Federal Income |California & |
| | |Taxes |Taxes |Federal Income |
| | | | |Taxes |
--------------------------------------------------------------------------------------------------------
|---------+--------+-------------+-----------------+--------------|
|Value of |$5,000.0|$0.00 * |($5,000.00 - |$0.00 + |
|the |0 |12.3% |$0.00) |$1,750.00 |
|Health | |= $0.00 |* 35% = |= $1,750.00 |
|Insurance| | |$1,750.00 | |
| | | | | |
|---------+--------+-------------+-----------------+--------------|
|1 |$1,750.0|$1,750.00 * |($1,750.00 - |$215.25 + |
| |0 |12.3% = |$215.25) |$537.16 |
| | |$215.25 |* 35% = $537.16 |= $752.41 |
|---------+--------+-------------+-----------------+--------------|
|2 |$752.41 |$752.41 * |($752.41 - |$92.55 + |
| | |12.3% |$92.55) |$230.95 |
| | |= $92.55 |* 35% = $230.95 |= $323.50 |
|---------+--------+-------------+-----------------+--------------|
|3 |$323.50 |$323.50 * |($323.50 - |$39.79 + |
| | |12.3% |$39.79) |$99.30 |
| | |= $39.79 |* 35% = $99.30 |= $139.09 |
|---------+--------+-------------+-----------------+--------------|
|4 |$139.09 |$139.09 * |($139.09 - |$17.11 + |
| | |12.3% |$17.11) |$42.69 |
| | |= $17.11 |* 35% = $42.69 |= $59.80 |
|---------+--------+-------------+-----------------+--------------|
|5 |$59.80 |$59.80 * |($59.80 - $7.36) |$7.36 + |
| | |12.3% |* 35% |$18.36 |
| | |= $7.36 |= $18.36 |= $25.71 |
|---------+--------+-------------+-----------------+--------------|
|6 |$25.71 |$25.71 * |($25.71 - $3.16) |$3.16 + $7.89 |
| | |12.3% |* 35% |= $11.05 |
| | |= $3.16 |= $7.89 | |
|---------+--------+-------------+-----------------+--------------|
|7 |$11.05 |$11.05 * |($11.05 - $1.36) |$1.36 + $3.39 |
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| | |12.3% |* 35% |= $4.75 |
| | |= $1.36 |= $3.39 | |
|---------+--------+-------------+-----------------+--------------|
|8 |$4.75 |$4.75 * |($4.75 - $0.58) |$0.58 + $1.46 |
| | |12.3% |* 35% |= $2.04 |
| | |= $0.58 |= $1.46 | |
|---------+--------+-------------+-----------------+--------------|
|9 |$2.04 |$2.04 * |($2.04 - $0.25) |$0.25 + $0.63 |
| | |12.3% |* 35% |= $0.88 |
| | |= $0.25 |= $0.63 | |
|---------+--------+-------------+-----------------+--------------|
|10 |$0.88 |$0.88 * |($0.88 - $0.11) |$0.11 + $0.27 |
| | |12.3% |* 35% |= $0.38 |
| | |= $0.11 |= $0.27 | |
|---------+--------+-------------+-----------------+--------------|
|11 |$0.38 |$0.38 * |($0.38 - $0.05) |$0.05 + $0.12 |
| | |12.3% |* 35% |= $0.16 |
| | |= $0.05 |= $0.12 | |
|---------+--------+-------------+-----------------+--------------|
|12 |$0.16 |$0.16 * |($0.16 - $0.02) |$0.02 + $0.05 |
| | |12.3% |* 35% |= $0.07 |
| | |= $0.02 |= $0.05 | |
|---------+--------+-------------+-----------------+--------------|
|13 |$0.07 |$0.07 * |($0.07 - $0.01) |$0.01 + $0.02 |
| | |12.3% |* 35% |= $0.03 |
| | |= $0.01 |= $0.02 | |
-----------------------------------------------------------------
|14 |$0.03 |$0.03 * |($0.03 - $0.00) |$0.00 + $0.01 |
| | |12.3% |* 35% |= $0.01 |
| | |= $0.00 |= $0.01 | |
|---------+--------+-------------+-----------------+--------------|
|15 |$0.01 |$0.01 * |($0.01 - $0.00) |$0.00 + $0.00 |
| | |12.3% |* 35% |= $0.00 |
| | |= $0.00 |= $0.00 | |
-----------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
|Totals | |$377.60 | $2,692.31 |$3,069.90 |
--------------------------------------------------------------------------------------------------------
To give an employee the same after-tax income as the
employee would have if the employee were in an
opposite-sex marriage, the employer would have to pay
$377.60 more in state taxes and $2,692.31 more in federal
AB 362
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taxes on the employee's behalf. The total increase in
tax is $3,069.90, as is the "gross up." This means that
to provide an employee the same after-tax treatment, the
combined federal and state effective tax rate on medical
insurance is $3,069.90 / $5,000 = 61.40%.
The employer may deduct the entire cost of the "gross up"
as a business expense, thereby reducing the employer's
gross income $3,069.90.
This bill would make Chart 1 look like the chart below.
The cells shaded gray indicate the main difference
between Chart 1 and the chart below.
------------------------------------------------------------------
| Chart 2 |
------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
| |Additional Income |California Income |Federal Income |California & |
| | |Taxes |Taxes |Federal Income |
| | | | |Taxes |
--------------------------------------------------------------------------------------------------------
|---------+--------+------------+------------------+--------------|
|Value of |$5,000.0|$0.00 * |($5,000.00 - |$0.00 + |
|the |0 |12.3% |$0.00) * 35% |$1,750.00 |
|Health | |= $0.00 |= $1,750.00 |= $1,750.00 |
|Insurance| | | | |
| | | | | |
|---------+--------+------------+------------------+--------------|
|1 |$1,750.0|$0.00 * |($1,750.00 - |$0.00 + |
| |0 |12.3% |$0.00) * 35% |$612.50 |
| | |= $0.00 |= $612.50 |= $612.50 |
|---------+--------+------------+------------------+--------------|
|2 |$612.50 |$0.00 * |($612.50 - $0.00) |$0.00 + |
| | |12.3% |* 35% |$214.38 |
| | |= $0.00 |= $214.38 |= $214.38 |
|---------+--------+------------+------------------+--------------|
|3 |$214.38 |$214.38 * |($214.38 - |$26.37 + |
| | |12.3% |$26.37) * 35% |$65.80 |
| | |= $26.37 |= $65.80 |= $92.17 |
|---------+--------+------------+------------------+--------------|
|4 |$92.17 |$92.17 * |($92.17 - $11.34) |$11.34 + |
| | |12.3% |* 35% |$28.29 |
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| | |= $11.34 |= $28.29 |= $39.63 |
|---------+--------+------------+------------------+--------------|
|5 |$39.63 |$39.63 * |($39.63 - $4.87) |$4.87 + |
| | |12.3% |* 35% |$12.16 |
| | |= $4.87 |= $12.16 |= $17.04 |
|---------+--------+------------+------------------+--------------|
|6 |$17.04 |$17.04 * |($17.04 - $2.10) |$2.10 + $5.23 |
| | |12.3% |* 35% |= $7.33 |
| | |= $2.10 |= $5.23 | |
|---------+--------+------------+------------------+--------------|
|7 |$7.33 |$7.33 * |($7.33 - $0.90) * |$0.90 + $2.25 |
| | |12.3% |35% |= $3.15 |
| | |= $0.90 |= $2.25 | |
|---------+--------+------------+------------------+--------------|
|8 |$3.15 |$3.15 * |($3.15 - $0.39) * |$0.39 + $0.97 |
| | |12.3% |35% |= $1.35 |
| | |= $0.39 |= $0.97 | |
|---------+--------+------------+------------------+--------------|
|9 |$1.35 |$1.35 * |($1.35 - $0.17) * |$0.17 + $0.42 |
| | |12.3% |35% |= $0.58 |
| | |= $0.17 |= $0.42 | |
|---------+--------+------------+------------------+--------------|
|10 |$0.58 |$0.58 * |($0.58 - $0.07) * |$0.07 + $0.18 |
| | |12.3% |35% |= $0.25 |
| | |= $0.07 |= $0.18 | |
|---------+--------+------------+------------------+--------------|
|11 |$0.25 |$0.25 * |($0.25 - $0.03) * |$0.03 + $0.08 |
| | |12.3% |35% |= $0.11 |
| | |= $0.03 |= $0.08 | |
|---------+--------+------------+------------------+--------------|
|12 |$0.11 |$0.11 * |($0.11 - $0.01) * |$0.01 + $0.03 |
| | |12.3% |35% |= $0.05 |
| | |= $0.01 |= $0.03 | |
|---------+--------+------------+------------------+--------------|
|13 |$0.05 |$0.05 * |($0.05 - $0.01) * |$0.01 + $0.01 |
| | |12.3% |35% |= $0.02 |
| | |= $0.01 |= $0.01 | |
-----------------------------------------------------------------
|14 |$0.02 |$0.02 * |($0.02 - $0.00) * |$0.00 + $0.01 |
| | |12.3% |35% |= $0.01 |
| | |= $0.00 |= $0.01 | |
|---------+--------+------------+------------------+--------------|
|15 |$0.01 |$0.01 * |($0.01 - $0.00) * |$0.00 + $0.00 |
| | |12.3% |35% |= $0.00 |
| | |= $0.00 |= $0.00 | |
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Page L
-----------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
|Totals | |$46.26 |$2,692.31 |$2,738.56 |
| | | | | |
--------------------------------------------------------------------------------------------------------
Under this bill, to provide an employee the same
after-tax income as the employee would have if the
employee were in an opposite-sex marriage, the employer
would pay only $46.26 in California income taxes and
$2,692.31 in federal taxes on the employee's behalf. The
total increase in tax would be $2,738.56, as would the
"gross up." This means that to provide an employee the
same after-tax consequences the employee would have if
the employee were in an opposite-sex marriage, the
combined federal and state tax rate on medical insurance
would be $2,738.56 / $5,000 = 54.77%.
This bill would therefore make it less expensive to fully
"gross up" an employee's wages. Rather than costing the
employer $3,069.90, the employer would pay $2,738.56, a
$331.34 difference.
The bill would also result in a decrease in revenues to
California because it taxes the "grossed-up" employee
less. Namely, $377.60 - $46.26 = $331.34 less.
a) A Paradox - This Bill is Both Cutting Edge and
Potentially Moot : As far as Committee staff is aware, no
state has ever crafted an income exclusion based upon a
taxpayer's federal tax liability. Were this bill to
enter into law, it would be a novel and historic
development in tax law.
However, even though this bill breaks new ground, this
bill is still potentially moot, depending upon the
actions of the United States Supreme Court.
The United States Supreme Court recently heard oral
arguments in United States v. Windsor and Hollingsworth
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v. Perry. United States v. Windsor concerns the
constitutionality of the Defense of Marriage Act. If the
United States Supreme Court finds provisions of the
Defense of Marriage Act unconstitutional, the federal
government would potentially have to extend all the
federal benefits of opposite-sex marriages to same-sex
marriages in those states in which same-sex marriages are
allowed. Moreover, if the United States Supreme Court
does not reverse the 9th Circuit's ruling or the District
Court's ruling in Hollingsworth v. Perry, California
would once more allow same-sex marriages.
If both of these cases reached these outcomes, this bill
would affect little change in the law. An employee in a
same-sex marriage would no longer incur increased federal
income taxes. There would be nothing to offset.
There is only one change proposed by this bill that would
survive such rulings by the United States Supreme Court.
It concerns domestic partners. No matter the United
States Supreme Court's actions, the federal government
would likely still not accord beneficial tax treatment to
either opposite-sex or same-sex domestic partnerships.
An employer could still choose to "gross up" an
employee's wages to offset the increased federal income
tax liability of the employee. This bill would continue
to exclude such offsets from the employee's California
gross income, provided the domestic partner was a
same-sex domestic partner. Opposite-sex domestic
partners would continue to pay increased federal income
taxes, under this scenario.
In such a situation, same-sex domestic partners could
marry and avoid increased federal income taxes in the
first place. Although some couples might not wish to
marry for any number of reasons, it is unclear California
should forego state tax revenue when such couples could
reduce their federal tax liabilities on their own and
choose not to. Encouraging tax neutrality between
marriage and domestic partnerships would be the only
justification to continue to provide an exclusion even
when taxpayers do not need one. If such tax neutrality
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between marriage and domestic partnerships is the goal
however, it is not clear why this bill does not provide
an exclusion for opposite-sex domestic partners as
well.<3>
b) A Past Tense Problem : This bill uses the words
"paid" and "reimburse." Such terminology implies the
taxpayer "paid" the extra taxes owed and then received a
check as "reimbursement." Most employers who "gross up"
their employees' salaries do so during the same taxable
year that the employees' spouses or partners receive
their health insurance. They pay the taxes on behalf of
the employee directly to the federal government in the
taxable year itself. Employers do not reimburse the
taxpayer after the taxpayer has paid and filed his or her
taxes - often, in April of the following taxable year.
Employers follow this practice for several reasons.
First, it prevents employees from facing liquidity
problems. Second, tax rates may change from one taxable
year to the next. If the employer instead reimbursed the
additional taxes the employee paid, the reimbursement
itself would increase an employee's gross income in a
different taxable year than the year in which the
employer provided health insurance. If tax rates rose in
the later year, the employer would need to re-calculate
how much to reimburse an employee for the taxes incurred
on the reimbursement itself. As the above calculations
show, performing a single calculation is already a
nightmare. Two would be unbearable. Third, it takes an
inordinate amount of time. If an employer reimbursed an
employee for the taxes from the first "gross up," it
would need to do so in the taxable year following the
reimbursement - two years after the employer provided
health insurance.
------------------------
<3> Committee staff question whether employers would continue to
"gross up" a California employee's wages when the employee could
instead marry their same-sex domestic partner and avoid
increased federal income taxes in the first place.
Additionally, Committee staff are unaware of employers that
currently "gross up" wages for opposite-sex domestic partners.
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This bill's authors may wish to amend this bill
accordingly.
c) Why Not Exclude the Entire Spiral? : As shown above
in Chart 2, this bill's exclusion only goes so far. It
excludes the first "gross up."<4> It also excludes any
amount the employer pays the employee to compensate for
the federal income taxes owed on the first "gross up"
amount itself. But this is where the exclusion's
generosity ends. In other words, the bill does not
exclude amounts paid to compensate an employee for the
increased federal tax liability resulting from the
"second gross up."
d) What about Step-Children? : Federal gross income
does not include the value of health insurance an
employer provides to an employee's opposite-sex spouse's
children, subject to certain requirements. 26 U.S.C. §
152(f)(1)(A)(i), Treasury Regulations Section 1.106-1.
Given this bill's purpose, the author may wish to make
explicit that state gross income shall not include
amounts paid to "gross up" an employee's salary to offset
increased federal income taxes an employee incurs because
the same-sex spouse's or domestic partner's children are
not treated as the employee's stepchildren for federal
income tax purposes.
e) Suggested Amendments : Committee staff suggest
amending this bill to:
i) Rework the bill's language to eliminate the
bill's past tense problem.
-----------------------
<4> The amount the employer pays to offset federal income taxes
the employee pays because the employer provides health insurance
coverage to the employee's domestic partner or same-sex spouse.
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ii) Include a sunset provision. Such a sunset
provision could be for a term of years.
Alternatively, a sunset provision could trigger this
act's repeal once the same-sex spouse or domestic
partner of a California employee is considered the
spouse of the employee under Section 105 or Section
106 of the Internal Revenue Code, as determined by a
federal appeals court of competent jurisdiction or
through an act of the United States Congress. If no
sunset provision is included, this bill's repeal would
require a 2/3 majority from a future legislature.
REGISTERED SUPPORT / OPPOSITION :
Support
Equality California (sponsor)
AIDS Project Los Angeles
Alice B. Toklas LGBT Democratic Club
American Federation of State, County, and Municipal Employees
California Nurses Association
California Immigrant Policy Center
Facebook
Harvey Milk LGBT Democratic Club
Health Access California
Los Angeles Gay & Lesbian Center
Microsoft
San Francisco Chamber of Commerce
San Francisco Mayor Edwin M. Lee
Opposition
None on file
Analysis Prepared by : Edward Beeby and M. David Ruff / REV. &
TAX. / (916) 319-2098
AB 362
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