For even the gay-friendliest companies, including health care benefits for employees with same-sex spouses meant a tough choice: effectively pay those employees less for taking the benefits or pay out more to make up for their higher taxes. Thanks to today’s Supreme Court decision striking down Section 3 of the Defense of Marriage Act, which restricted federal benefits to opposite sex spouses, employers may no longer have to make that choice.
One of the largest federal benefits for spouses is inclusion on employer provided health care plans without higher taxes for the employee. When an employee adds his or her spouse to an employer health care plan, it doesn’t count as higher income. But for gay and lesbian employees who included their spouses (who aren’t “dependents” for tax purposes) on employer health plans, the greater benefit was counted as income and brought along a bigger tax bill.
To make up for the higher taxes and ensure that employees were treated equally who had the same level of benefits, a growing number of companies, including Google (one of the first major companies to do so, in 2010), Facebook, Apple, and Goldman Sachs included so-called “gross ups”: more pay to wash out the higher taxes. “It should lead to a big rush to eliminate [gross ups],” said Joseph Adams, a lawyer McDermott, Will, and Emery specializing in employee benefits.
The companies that do offer them tend to be rich and employ mainly professionals, like most major banks, technology companies, and law firms. The legal gossip blog “Above the Law” said that the gross up was “all the rage” in 2011. But for employers who don’t offer a gross up, the cost for gay and lesbian employees in increased taxes to cover their spouse is high, over $1,000 a year on average according to the Williams Institute. According to calculations done by Adams for The New York Times, for roughly every $1,200 to $1,500 it costs in extra taxes for a employee to cover their spouse or domestic partner, they would have to get $2,000 to $2,500 in extra pay to make them up. One version of the 2010 health care reform law included a provision eliminating taxes for domestic partner benefits, but it was not included in the final version of the bill.