Domestic Partners Finding Some Tax Relief on Health Benefits

Last November, top executives at accounting giant Ernst & Young met with a select group of employees from across the country to get new ideas on ways to foster inclusiveness and fairness in the workplace.

The response from the workers was unanimous: Join the growing rank of employers that are reimbursing gay and lesbian employees for the additional taxes they incur for their same-sex domestic partnership health care benefits.

Action proved swift. Just two months later, New York-based Ernst & Young announced it would reimburse eligible employees for the tax burden—on average $1,100 per employee annually—starting this tax year. The move made Ernst & Young the first of the Big 4 accounting firms to offer the benefit to employees with same-sex domestic partners.

“It’s a great perk to start 2012 with, to see that financial burden disappear,” says Bryan Parsons, 36, an associate director for quality and risk management at Ernst & Young who is based in San Francisco. Parsons’ domestic partner of two years, a commercial photographer, is on Parsons’ health plan.

The issue has existed for years. Married couples don’t pay taxes on employer-based health insurance benefits but domestic partners do. Domestic partners pay a federal tax as well as taxes in certain states.

Today, 32 for-profit employers nationwide offer this benefit, known as “gross up,” according to the Human Rights Campaign, a leading gay, lesbian, bisexual and transgender advocacy group. That’s compared with just 12 companies known to pick up the tax payment at the end of 2010, according to the group.

In June 2010, Google Inc. announced it would offer the gross-up benefit to employees with same-sex domestic partners. Most companies don’t extend the perk to opposite-sex domestic partners because they have the choice to marry, thereby avoiding the tax.

“It certainly caught on with the Google announcement,” says Deena Fidas, deputy director of the workplace project at the Human Rights Campaign. “It started to really kick this into high gear.”

Other employers now offering gross ups include Apple Inc., Bank of America Corp., Cisco Systems Inc., Facebook Inc., Goldman Sachs Group Inc. and Microsoft Corp.

The cost to employers depends on the number of workers who carry health benefits to their same-sex domestic partners and state tax laws. Ernst & Young is one of the few companies that will reimburse employees for state taxes as well as the federal tax, Fidas says.

The federal tax on domestic partner health benefits was slated to be eliminated via the Patient Protection and Affordable Care Act of 2010, but the provision was taken out before the bill reached President Barack Obama’s desk. Today, 80 companies have signed onto a coalition calling on Congress to eliminate the tax, according to the Human Rights Campaign.

Karyn Twaronite, Americas inclusiveness officer at Ernst & Young, describes the firm’s new policy on the matter as “beyond fairness.” She says it’s unknown how much the gross up will cost the company because the number of domestic partners receiving health benefits is confidential.

“We can serve our clients better and impact our bottom line by attracting and retaining diverse talent,” Twaronite says. “If you can leverage and maximize these differences, you can have a more robust work environment.”

Because the change starts with the 2012 tax year, Parsons will pay the federal tax on his partner’s benefits this April. It will be their first year paying the tax so Parsons says he is unsure what it will cost the couple. But that doesn’t bother him.

The new perk is “quite a comment on the firm’s commitment to inclusiveness and diversity,” he says. “That speaks volumes to me as an employee.”

Rebecca Vesely is a freelance writer based in San Francisco. To comment, email editors@workforce.com.