Tax Problem for Illinois Civil Unions
SPRINGFIELD, Ill. (IRN/KMOX) – We’re one month into civil unions in Illinois, and a problem has been discovered.
Couples in civil unions are supposed to be treated like married couples under Illinois law, but when it comes to income tax, there’s a snarl:
Illinois’ tax law says if taxpayers file their federal income taxes separately, they have to file their state taxes that way. Since civil unions aren’t recognized under federal law, civil-unioned couples in Illinois must file separate state tax returns. (Illinois Income Tax Act Sec. 502(c)(1)(C): “If the federal income tax liability of either spouse is determined on a separate federal income tax return, they shall file separate returns under this Act.”)
Since health insurance benefits that one civil union partner gets for another are taxed as income under federal law, and since the state uses the same numbers, they’re taxed under state law when it appears they should not be.
“Because Illinois uses the federal gross income numbers as the basis for Illinois taxation, those benefits are still going to be taxed under state law as well, and in my view, that is not in the spirit of the civil union law,” said Christopher Clark, senior staff attorney for the group Lambda Legal.
Clark says Lambda Legal is urging the Illinois Department of Revenue to rectify the situation, and is evaluating its options for redress.
Revenue Department spokesman Susan Hofer says legislation will be required. “It’s not a question of wanting to meet the full faith of the Civil Union Act. It’s that nobody amended the Illinois Income Tax Act,” she said.
Hofer says that with respect to the health insurance problem, the department would need a law that requires employers to provide a statement to employees who request it that breaks out cash compensation vs. the imputed value of federally taxable health insurance benefits.