In April of 2000, Mississippi native Laura Conaway walked into the offices of The Village Voice, a New York-based alternative newsweekly that focuses on the arts and politics of New York City, to start a job as an executive editor.

Conaway, 39, and her partner, Sarah Goodyear, 43, have a five-year-old son, Nathaniel, and Goodyear (Nathaniel's biological mother) is a stay-at-home mom. So naturally, comprehensive family health care coverage through Conaway's employer was important.

Conaway was fortunate that not only does The Village Voice offer health insurance to same-sex partners, the publication was a trailblazer in that regard.

In 1982, The Village Voice became the first American employer to offer health insurance to same-sex partners, extending benefits to the domestic partners of its 150 workers in a deal struck between the employees' union and management, then led by communications magnate Rupert Murdoch.

Now, 25 years later, domestic partner benefits for gay, lesbian, bisexual and transgender employees are no longer a fringe issue in corporate America.

Married couples no longer represent the majority of American households, according to the U.S. Census Bureau. About 11% of American households were same-sex domestic partner households in 2000.

Yet the ascent of domestic partner benefits among employers stems from the evolution of nondiscrimination policies extending to sexual orientation and companies wanting to stay competitive and retain top-notch talent.

"Designing a benefits package that appeals to a diverse workforce enables employers to maintain a recruitment edge and demonstrates that the employer values diversity," says Samir Luther, workplace project manager at Human Rights Campaign, a Washington, D.C.-based gay and lesbian rights advocacy group.

Consider, for example, in 2007, 53% of the Fortune 500, and 82% of the Fortune 50 largest corporations, offered health benefits to employees' domestic partners, compared to just 25% of the Fortune 500 in 2000, HRC reports. JP Morgan was the first Wall Street firm to offer domestic partner benefits, while Levi Strauss was the first Fortune 500 firm to do so, in 1992.

Even smaller employers are getting into the game. According to 2006 research by the Society of Human Resource Management, 28% of small employers, those with one to 99 workers, offered domestic partner benefits, compared to 21% in 2005.

Seeking tax equity

However, as more employers and employees start to take advantage of domestic partner benefits, they are starting to realize that federal tax laws can become a financial burden.

"The tax consequence is a major issue. I have to think that most people in the United States — whether they are for or against civil unions or marriage for gay couples — would say the taxes associated with workplace domestic partner benefits are unfair," Conaway argues. "But because it falls on such a small minority of people, I don't think a lot people realize that the tax consequences are out there.

"When you get domestic partner benefits, they don't add it to your income throughout the year. They slap it on at the end," she explains. "They take the value of my partner's — [although] not my son's — health insurance, and they add it to my salary as though I was being paid that money."

At the end of the year, her employer deducts taxes on the value of the health insurance. "So out comes Social Security, which is about $600 — that's the first thing they get," Conaway says. "It's right during the holidays, and that's just a hateful time for it to happen. You get this check, but it's really short.

"Then, when you do your state and federal taxes, it turns out that [you've] underpaid by a lot," she continues. "The state and federal taxes I pay on the value of my partner's health insurance is in the neighborhood of $5,000 a year. It's a huge chunk of money."

Todd Solomon, a partner at McDermott Will & Emery's Chicago office and the author of the upcoming fourth edition of "Domestic Partner Benefits: An Employer's Guide," says the value of the coverage provided to the domestic partner is taxed as ordinary income, basically as additional compensation to the employee.

In addition, employers must pay payroll taxes on that amount, as well as Social Security and unemployment taxes. They also must calculate the value of the coverage and impute that income as taxable.

Solomon believes there are two reasons domestic partnership enrollment remains low at companies. "People are fearful of coming out in their workplace, and it's not a tax efficient way to cover your partner," he says.

"If your partner can get coverage anywhere else, it is usually more efficient, from a financial standpoint, to have your partner covered elsewhere, because of the tax consequences," he adds. "Both employees and employers want to fix this."

Recently, U.S. Rep. Jim McDermott (D-WA) introduced in the House the Tax Equity for Health Plan Beneficiaries Act.

The bill proposes to "eliminate the inequities in federal tax law by excluding the value of domestic partner health coverage from the taxable income of the employee and from wages for purposes of both employee and employer payroll tax obligations."

Meanwhile, Conaway believes employers could do a better job and spend more time explaining to workers the tax burdens they might face when using domestic partner benefits.

"They should clearly explain to you that it's a good thing that you are doing this, and you are going to save money in the long run, but at the end of the year you are going to receive a short pay check."

Conaway says she must also pay state and federal taxes on the additional income.

Valuable retention tool

Despite the tax drawbacks, Conaway admits that workplace benefits for domestic partners are vital for employee retention. "For me, as an employee coming into the company, [the domestic partner benefits] were not so valuable as a recruitment tool, but [they] are valuable as a retention tool."

In 1999, Conaway worked as a staff writer at another Village Voice Media, Inc. publication, the Long Island Voice, which did not offer domestic partners benefits. "So as you can see, I took a job, even though I needed domestic partner benefits."

Mihlee Robinson, director of human resources at The Village Voice, says an employee contacts HR explaining he or she is eligible for domestic partner benefits. Under the company's policy, there is a one-year waiting period before coverage kicks in.

An employee who is in a domestic partner arrangement is eligible for whatever benefits that are offered to the full-time employees, such as health, dental, child care reimbursement and maternity leave, Robinson confirms.

"Originally the benefits were offered only to union employees, and management was not included, but that's changed. Now management employees are included."

Still, gay and lesbian couples must complete a notarized affidavit and establish thorough documentation, such as utility bills and joint banking account statements, to prove that they have been living together for more than a year.

Or, they can go to City Hall and obtain a domestic partner certificate, which also entails showing proof of cohabitation for more than one year. Conaway and Goodyear went to City Hall, and the process took about a day to complete, but Conaway says it was not an enormous hassle, in light of the benefits.

Yet she does admit that it's sort of unfair in that "if you are married, you just come in and say, 'We are married,' and everybody says, 'Okay.'"

While at the newspaper, Conaway put the benefits to good use, most notably to cover expenses for Nathaniel's birth. "For the most part, it has been utterly seamless," she says of using workplace benefits.

Although domestic partners may have different tax treatment and benefits enrollment procedures than married couples, when it comes to welcoming a new child, it seems all new families are treated the same.

"When our child was born, I was concerned about how long it would take to have him added as a dependant, but it turned out he was automatically added." —L.C.B.

Next month "Changing faces, changing benefits" focuses on new college graduates.

Benefits tax implications for domestic partners

Although the Internal Revenue Service has determined that a domestic partner is not considered a "spouse" under federal tax law, in certain circumstances, domestic partners may by able to qualify as a "dependant" under the definition of a "qualifying relative" of Section 152 of the Code, for purposes of receiving tax-free employer-provided health plan coverage.

To qualify as a "dependant," the domestic partner must have the same principal address as the employee/taxpayer for the year and be a member of the employee/taxpayer' household, and receive from the employee/taxpayer more than half of his or individual support for the year.

Significantly, a domestic partner or a partner's child need not also be claimed by the employee/taxpayer as a "dependant" on the employee/taxpayer's federal tax return to be eligible for tax-free health coverage.

• Health care spending accounts: Presently, medical expenses incurred by or on behalf of domestic partners and their children that are not qualifying dependents under Code Section 152 are not eligible to be paid with HSA funds or for tax-free reimbursement from an FSA.

• Retirement benefits: Through the Pension Protection Act of 2006, as of Jan. 1, if the plan permits, any beneficiary — including a domestic partner, parent or sibling — can roll over inherited retirement benefits to an IRA on a tax-free basis. Although retirement plans do not need to be amended until Dec. 31, 2009, an employer must notify their plan administrator and employees to make the non-spouse rollover option available.

Source: Human Rights Campaign (www.hrc.org/workplace)