July 12, 2010; Source: San Francisco Gate | Under Federal law, gay and lesbian employees who cover their partners under their health plans are taxed, as the extra coverage counts toward their wages. Social Security, Medicare, and other payroll taxes are levied, too, and some states also tax the coverage. Google made headlines recently with the announcement that they’ll reimburse workers for the tax they pay on domestic partner benefits, a process known as “grossing up.” The Bill and Melinda Gates Foundation has been covering same- and opposite-sex domestic partnerships for several years.
Two better policy solutions wait in the wings—an end to the Federal domestic partnership tax, and universal coverage—but until Congress moves on those issues, employers are finding best policies for grossing up. One primary concern is at what rate to calculate the reimbursement. Should the policy cover the full amount, and does it vary based on the employee’s tax bracket? Employers who are taking an active stance against these tax inequities begin with such considerations.
With such visible leadership from Google, some predict that competitors like Apple will need to start grossing up, too. Gates might’ve provided the same impetus for the nonprofit sector, but it doesn’t seem to have been contagious. This time, will the nonprofit sector follow suit?—James David Morgan