A Question of Fairness for Same-Sex Couples

One of those small but irritating corners of discrimination against same-sex couples is the way the IRS taxes the health insurance benefits provided to an employee’s domestic partner. When a straight married spouse adds his or her spouse to the employer-paid health insurance, the value of that insurance is provided tax free. However, because same-sex couples are not considered spouses under federal law, the value of that insurance premium is considered taxable income — thus imposing a burden of about 30% on the gay or lesbian employee, above what his or her straight co-workers pay.

To their credit, several employers (Google was the first, now followed by Facebook, Bain & Company, Kimpton Hotels, Cisco and the Gates Foundation, and soon the Boston Consulting Group) now cover the additional tax burden imposed by the federal government. This is viewed, correctly I think, as a way of equalizing the benefit, making up for the burdens imposed on the employees by a discriminatory tax system.

As a political statement and as a way of signaling their understanding of what it “costs” to be in a same-sex relationship, this is a good step for these companies to make. However, a recent tax development for couples living in California actually provides tax savings to many couples. The new ruling requires state-registered domestic partners in California to “split” their community property income 50/50, with each partner reporting half of the total income. Because these couples are not recognized as married under federal law, some of them will actually see a reduction in their taxes — since they are not hit by the “marriage penalty” that straight married couples encounter. So, should those couples get a reduction in their benefits, to adjust for the windfall they are receiving because of this new tax ruling?

I think not. Overall, the research has shown that on average same-sex couples face more than $400,000 in additional costs over a lifetime of discrimination. For some couples it is the loss of social security survivor benefits, for others it is the cost of adoption or surrogacy fees. In many instances the legacy of discrimination is a reduction in wages and career opportunities. It is not possible for any employer to conduct an individual evaluation of the tax and other financial burdens experienced by each couple. Instead, the underlying discriminatory laws should be eliminated — but in the meantime, the most eggregious mistreatment should be alleviated whenever possible — which is exactly what these enlightened companies are doing.