Employee Benefits: An Incomplete ‘Gross-Up’ of Government Discrimination
By Richard C. Milstein and Jeffrey T. Cook
May 31, 2012
Recently, President Obama pronounced that he had come to recognize the equal rights of same-sex couples in marriage. Even though, in his mind, it remains a local as opposed to national issue, and even though the administration refuses to enforce the Defense of Marriage Act (DOMA), same-sex couples still face a barrage of subtle yet stark forms of discrimination at the hands of the federal government.
One such form of discrimination is borne by those employees in same-sex relationships whose employers offer domestic partner benefits. Because of DOMA, the federal government taxes the value of these benefits as income — not so for the spousal benefits of heterosexual employees. This holds true for a number of states as well that do not recognize same-sex couples as an economic unit. Based on a study by the Williams Institute, on average, an employee pays more than $1,000 per year in taxes on domestic partner benefits that a married heterosexual employee with the same coverage need not incur.
As a result, same-sex couples alone face both a financial and emotional slight in this context. For recruitment and retention purposes, some employers have taken upon themselves to fill at least the financial gap by “grossing up” the salaries of affected employees. For example, the government taxes the employee on the fair market value of the domestic partner benefits. The employer then “grosses up” the employee by making an additional payment to reimburse the tax imposed on the value of the benefits. To provide a true and complete “gross-up,” the employer would also have to pay an additional amount in order to reimburse the tax imposed on the “gross-up” payment itself.
As of March 2012, the Human Rights Campaign identified 36 employers that have already implemented gross-up policies, with many more doing so in the past year (including almost 30 major law firms). Overall, however, this remains a very small subset of employers. Indeed, only one municipality (Cambridge, Mass.) has been identified as grossing up domestic partner benefits.
In effect, employees in same-sex couples or their employers have to shoulder the economic burden of the government’s discriminatory acts. Most same-sex couples personally have to pay taxes on the same benefits that others receive tax-free. Whether altruistically or for competitive advantages, a handful of employers have relieved their employees of all or some of this tax differential treatment. In effect, these employers face discrimination: They aspire to provide equal benefits for all of their employees but are forced by the government to incur additional costs to do so. Either way, DOMA and other related legislation have imposed yet another form of financial discrimination.
However, no measure taken by employers (or anyone else) can remedy the emotional aspects of the intrinsic discrimination imposed by both federal and state governments. Even if a same-sex couple lives in a state that recognizes their marriage and is employed by someone who wants to offer them full and equal benefits, the federal government still superimposes its stamp of disapproval. And what justification is there for the federal government to establish discrimination as a point of competitive advantage in the employment arena?
Even if President Obama believes this to be a local, not national, debate, it is still a national issue, as same-sex couples face separate and unequal treatment at that level. Given the definite terms of his pronouncement, the administration should take interim measures to root out the very real forms of both emotional and financial discrimination that the federal government still imposes in employee benefits and elsewhere.