Same-sex Marriage is Legal in D.C., but for Gay Couples and Employers, Tax Differences Remain
Last March, the city witnessed the first same-sex couples register to marry in the nation’s capital. Federally recognized same-sex marriage remains elusive, however, and area employers and same-sex couples alike must navigate the differing tax implications of being married as a same-sex versus opposite-sex couple.
For employees who enroll a same-sex spouse or partner in their healthcare plans, the fair market value of the coverage is added to their W-2 forms at the end of the year as imputed income for federal tax filings. Healthcare coverage for heterosexual spouses is not subject to such taxation. And the difference can drain the bank accounts of same-sex couples: On average, employees with partner benefits pay $1,069 more per year in taxes than would an employee with the same coverage for an opposite-sex spouse, according to a recent report by the Williams Institute and Center for American Progress.
Now, a new trend seems to be emerging in corporate benefits departments to mitigate this unequal tax burden on employees in same-sex relationships. Some major businesses are compensating employees with same-sex partners on their health insurance for the additional tax liability. This practice, known as “grossing up” wages has caught on as part of the next generation of gay-friendly workplace standards. Last year, trendsetting Internet giants Google and Facebook announced that they would pay out the tax difference on partner benefits to those employees affected by the law. Financial firms such as Barclays and Credit Suisse have also announced that they will gross up wages for employees. Other employers with D.C.-area work sites are doing the same, including Silver Spring-based Discovery Communications, Kimpton Hotels, Fenwick & West LLP, Morrison & Foerster LLP and Cisco Systems.
Seventy–two major businesses and trade associations, including Bethesda-based Marriot International and the Society for Human Resource Management in Alexandria, Va., have all signed on to a coalition of employers endorsing a federal repeal of this unequal tax burden according to the Human Rights Campaign Foundation (HRC). The legislation was originally part of the healthcare reform, but was dropped during the reconciliation process. In the meantime, employers seeking to be on the cutting edge of diversity and inclusion practices will find ways to close this gap for their gay and lesbian employees, better ensuring equal pay for equal work.