Paul L. Caron

Wednesday, June 30, 2010

NY Times: Google to 'Gross Up' Pay for Taxes on Benefits to Gay & Lesbian Employees

Google Following up on my earlier post, Should Law Schools 'Gross Up' Pay for Taxes on Benefits to Gay & Lesbian Faculty?:  New York Times, Google to Add Pay to Cover a Tax for Same-Sex Benefits:

Working for a company as rich as Google comes with an incredible number of fringe benefits: the free food, the free laundry, the doctor on duty at company headquarters and the impressive five months of maternity leave with full pay and benefits, to mention a few.

So it is not entirely surprising that the company is about to introduce another set of benefits that pushes the envelope — this time, geared toward its gay and lesbian workers.

On Thursday, Google is going to begin covering a cost that gay and lesbian employees must pay when their partners receive domestic partner health benefits, largely to compensate them for an extra tax that heterosexual married couples do not pay. The increase will be retroactive to the beginning of the year. ...

Under federal law, employer-provided health benefits for domestic partners are counted as taxable income, if the partner is not considered a dependent. The tax owed is based on the value of the partner’s coverage paid by the employer.

On average, employees with domestic partners will pay about $1,069 more a year in taxes than a married employee with the same coverage, according to a 2007 report by M. V. Lee Badgett, director of the Williams Institute, a research group that studies sexual orientation policy issues.

So Google is essentially going to cover those costs, putting same-sex couples on an even footing with heterosexual employees whose spouses and families receive health benefits. ...

The extra compensation to cover the domestic partner tax will apply only to same-sex domestic partners, Mr. Bock said, because heterosexual couples can avoid the added tax by marrying. (Same-sex couples can make their unions official in several states, but their relationship will not be federally recognized.) ...

Google isn’t the first company to “gross up” their employees’ pay, as raises to cover taxes are known. According to the Human Rights Campaign, a handful of other organizations, including Cisco, Kimpton Hotels and the Gates Foundation, do so as well. Benefits experts said a few other companies provided the extra compensation, though it still amounted to a relatively small number.

But given the competitive nature of the benefits culture in Silicon Valley, where companies often offer extra perks to attract top employees, Google’s decision could lead to policy reviews, experts said.

(Hat Tip: Kirk Stark.)

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I meant to respond to this before but had been traveling and it slipped my mind.

It seems to me that this may create more troubles than it solves, including a potentially massive tax liability for the employee down the road.

Let us assume that an employee is earning $100,000/yr and Google is going to pay an extra $1,000 to make them whole on the insurance.

So, in 2009, the employee made $100,000 in reported gross income and let us say they paid 25% overall tax rate. (Trying to keep the math as simple as possible here)

2009 tax liability = $25,000

In 2010, Google pays them $100m + $1,000 so their gross income is $101,000

2010 tax liability = $25,250

If Google is going to keep them whole, in 2011, they need to pay $100m + $1,250

2011 tax liability = $25,312

And so on. It will grow slowly at first but as the effect compounds, it will become significant.

John Henry

Posted by: John Henry | Jul 8, 2010 8:37:15 AM

of course, the simple solution is to allow gay couples to marry. until such time, this adjustment seems only fair.
'funny' how many commenters here get all edgy about discrimination based on sexual orientation only when gay citizens make any small move toward equality with str8 folks.

Posted by: el polacko | Jul 2, 2010 12:03:59 AM

I'm happy to lower the tax burden on all child free couples or single people as long as they revoke any claims to Social Security. (Not that I can... ;))

I would tend to agree with Dan that the gross up would also now taxable. Thank you Google -- the US has got a big deficit to pay.

Also,given the excellent comments, it appears turns out this "fair tax" business is much trickier than most imagine.

Posted by: Amy | Jul 1, 2010 3:59:17 PM

It's true that the non-marry-able gay couple will pay an extra bump over and beyond what a married couple would have to pay for these benefits.

But we seem to have forgotten that one huge extra cost that those of us who are married end up saddled with.

We're married. (Sigh.)

- - -

I'm all for gay marriage. I mean, it's only fair. We have to do it - so should they.

Posted by: bobby b | Jul 1, 2010 3:07:41 PM

To put and end to the "well, heterosexuals can get married" silliness, heterosexual couples can also get divorced.
I'd be OK with same-sex benefits if the couple had to sign a contract that essentially put them trough divorce when they split up.
Right now all same-sex couples are getting is the benefits of marriage without any of the downsides.

Posted by: wikiwiki | Jul 1, 2010 3:06:10 PM

Not only is the 'gross up' taxable's also going to result in increased social security taxes. That means that they're also provoking a raise in social security benefits (if the gross-up occurs just before retirement).

That's the gift WE ALL keep giving.

Posted by: ray | Jul 1, 2010 2:21:27 PM

First, this issue exists because federal law treats the employer's cost of health insurance benefits as exempt from taxation on the part of the employee. The insurance is a form of compensation, and should be treated as such.
Second, there is an irony here in that Google--which presumably passionately believes in "keeping government out of the bedroom"--will need on-site auditors to confirm that the gay/lesbian employee is indeed engaging in sexual activity with his/her partner. Otherwise, what's to keep an employee from fraudulently claiming the benefit for someone who simply shares the rent?

Posted by: Jerry | Jul 1, 2010 12:34:20 PM

Doesn't that "gross up" amount become taxable income as well?

Posted by: Diggs | Jul 1, 2010 9:56:14 AM

So, I'm male, work for Google and claim that my significant-other is a pre-op M2F transgender person. Do I get a raise? If so, do they take it away post-op? And then restore it once we are married?

Posted by: Dr. Deano | Jul 1, 2010 9:14:57 AM

I wonder whether that employee benefit will only be extended to same-sex unmarried couples? I'd think there may be workers in domestic partnerships with a person of the opposite sex that would appreciate the benefit.

Posted by: Mark | Jul 1, 2010 9:10:01 AM

Since the tax is or is not levied by the government and is therefore a transaction between the government and an individual, does this not, in effect, indicate that Google is now paying gay and lesbian employees more because they are gay and lesbian? Would this not be open to some kind of challenge?

Posted by: rrr | Jul 1, 2010 8:56:16 AM


Not all heterosexual domestic partners can marry. One of them may already be married. They may be brother and sister (instead of brother and brother) or man and his grandmother.

What about equality for singles and the childfree, who are overtaxed much more than homosexual couples? Is Google about to extend the benefit of 5-months off with full pay for a non-medical problem to the childfree? Google is evil.

Posted by: Jimbino | Jul 1, 2010 8:55:32 AM

Question: couldn't straight Google employees take advantage of this as well? One assumes Google couldn't make these benefits gay-only without running afoul of anti-discrimination law somehow.

Imagine the Google employee telling his girlfriend, "I'd love to propose, honey, but I can't take the pay cut."

Talk about a marriage penalty. :)

Posted by: Mars vs Hollywood | Jul 1, 2010 8:38:53 AM

When are single people in this country going to get tired of subsidizing everyone else? When we make the same salary as a married employee with kids, the company pays ~4 times as much health insurance as to the single employee. There are orders of magnitude more straight single people in this country than G&L couples. When is google going to compensate them for the disparity? I guess we just need to start throwing obscene parades.

Posted by: CJ | Jul 1, 2010 8:23:30 AM

I ask because I truly don't know: wouldn't that constitute a violation of "equal pay for equal work"? Do anti-discrimination laws guarantee equal after-tax income?!?

Posted by: ameryx | Jul 1, 2010 8:02:20 AM

So its legal for companies to discriminate based on sexual orientation in California?

Posted by: Tommy | Jul 1, 2010 7:26:55 AM

I look forward to seeing how Google compensates married people for having to pay higher taxes than if they were just shacking up together.

Posted by: deanj | Jul 1, 2010 7:25:46 AM