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How Health Benefit Tax Reimbursements Work

More employers are offering gay and lesbian employees who cover their domestic partners or same sex spouses with their health care a health benefit tax reimbursement. For example, Facebook earlier this month joined other employers, including Barclays and Google, in offering employees the reimbursement.

Why There’s a Problem

  • First, a company chooses to allow their LGBT employees to cover their partners under their employee health insurance.
  • However, because the federal government does not recognize gay relationships, these employees owe income tax on this added benefit. If instead these employees were married to an opposite-sex spouse, they’d incur no such income tax.
  • This means that domestic partners and same-sex spouses pay on average of $1,000 more per year than opposite-sex spouses.

What Employers Do

To make up for the higher income taxes that LGBT employees pay to cover their partners, the employers will essentially pay them more and make up the difference.

For example, an employee that makes $100,000 a year and who pays a $1,000 in income tax on health benefits for his or her same-sex partner will instead earn $101,000.

Of course, that new $1,000 in salary will be subject to income tax as well. Employers will also cover this difference. So in the previous example, the employee will earn $1,000 plus whatever extra to offset the income tax on the added income.

[Cross-posted at the Gay Law Report by Gideon Alper, a Georgia asset protection and domestic partnership attorney.]

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Gideon Alper

Gideon Alper