Many of the country’s leading companies now provide the same health benefits to same-sex couples that they provide to heterosexual married couples. The policy helps these companies compete for the best talent, and also reduces one of many forms of discrimination against same-sex couples. These couples still suffer a disadvantage related to their health benefits, however, due to their treatment under the tax law.
As a general rule, employees have to report taxable income when they receive valuable benefits from their employer. Health benefits are an exception: employees can receive these benefits for themselves, their spouses and dependents without reporting the value as income. Federal law doesn’t recognize same-sex couples as spouses, however, even when they are legally married under state law. As a result, when a company extends health benefits to a same-sex partner (other than one who qualifies as a dependent), the employed partner has to report taxable income equal to the value of that benefit. As a result, the employee’s cost for the health benefits is higher for a same-sex couple than for a heterosexual couple. One estimate pegs the added cost at about $1,000 per year, on average.
Google recently anounced that it would cover this added cost for employees who are affected by this rule. Reports indicate the company will not increase the regular compensation of these employees, but will make a separate payment designed to eliminate this element of discrimination. While Google is not the first company to take this step, it is the most prominent, and observers have speculated that other companies, particularly those that compete with Google for workforce talent, will follow suit.
Comment: While Google’s new practice eliminates a form of discrimination, it has the effect of making it more expensive to hire gay or lesbian employees than heterosexual employees. This added cost is unlikely to be a significant factor at a company with the financial strength of Google, but might have the potential to influence hiring decisions at other companies, introducing a different source of discrimination. Google’s approach is a positive step, but an imperfect solution to a problem caused by discriminatory tax laws.
Update: Financial firm Barclays announced a similar move in November 2010, indicating this approach to compensating employees with same-sex partners may be a growing trend.
Tags: gay-lesbian
