Gay Couples, Health Care Benefits and Taxes

As you know, gay couples do not have access to many of the benefits that come with legalized marriage. Because of the Defense of Marriage Act (DOMA) the federal government does not recognize gay marriages – even for those who are married in states in which it is legal. As a result, the federal tax code does not recognize same-sex unions.

So, the Tax Code treats the value of employer-provided healthcare benefits for a civil union or domestic partner as ‘imputed income’ to the employee. This means that employees who elect domestic partner benefits must pay income tax on the value of those benefits. So, while many companies offer health insurance coverage for same sex partners, the employees who take advantage of that benefit – just as their straight colleagues do – pay more for it.

But a growing number of companies are attempting to combat this injustice by covering the extra costs that same-sex couples pay for these health benefits through what’s known as a “tax gross-up.” There term tax gross-ups refers to the practice of employers making employees whole for additional taxes owed, thereby ensuring that employees receive the true dollar amount promised to them as compensation.

Companies such as Google, Bank of America, Barclays, Cisco, Discovery Channel and the Klimpton Hotel chain have already agreed to reimburse U.S. employees whose health benefit for same-sex partners or spouses are treated as taxable income by the IRS. And yesterday, Morgan Stanley announced that it will begin reimbursing employees for the extra taxes they pay on health insurance for their same-sex partners starting January 1, 2012.

Does your company offer a gross up? Check with your HR department today to be sure that you don’t miss out on benefits that may be available to you.  And if they don’t offer a gross up – ask them why.

Please note that the Bucks blog at the New York Times keeps an updated list of the companies that offer a tax gross up.

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