'Big Four' Firm Provides Tax Gross-Up Benefit to LGBT Employees

By SHRM Online staff Jan 16, 2012

Ernst & Young LLP and its affiliates will reimburse lesbian, gay, bisexual and transgender (LGBT) employees for the additional federal and state taxes they pay on same-sex domestic partners' or spouses' medical benefits in the U.S., making it the first Big Four accounting firm to offer this perk. The tax equalization (gross-up) was effective Jan. 1, 2012.

"Ernst & Young strives to promote an equitable work culture in every way possible," said Karyn Twaronite, Americas inclusiveness officer at Ernst & Young. "Our decision to provide this tax gross-up reinforces our long-standing pledge to foster a work environment that is inclusive for all of our people and signals our ongoing efforts to remain a leader in providing equitable benefits."

Ernst & Young began offering employees in the U.S. same-sex domestic partner benefits in 2002. Under federal law and many state laws, same-sex partnerships are not recognized, causing employees who receive health care for their same-sex partner or spouse under their employer's health plan to incur extra taxes.

As of December 2011, there were only 30 for-profit employers that grossed-up these benefits, according to the Human Rights Campaign (HRC), a civil rights organization working to achieve LGBT equality in the workplace. However, as of Jan. 1, 2012, seven other large U.S. companies began offering these reimbursements as well: Thomson Reuters, American Express, Morgan Stanley, Bank of America, Microsoft, Yahoo and Accenture.

Ernst & Young is the first of the Big Four professional services firms to receive a 100 percent rating for corporate equality from HRC, according to the firm.

How Tax 'Gross-Ups' Work

According to a description provided by Todd A. Solomon, a partner at law firm McDermott Will & Emery, a tax gross-up for the health benefits of same-sex spouses or domestic partners works this way:

Consider an employer that wants to gross-up an employee in the 20 percent tax bracket. The fair market value of the employee's nondependent same-sex spouse/partner coverage is determined to be $200 per pay period.

The employee will incur $40 of tax ($200 x 20 percent) for that pay period. To gross-up the employee, the employer would need to make an additional payment of $48 to this employee—$40 would serve as reimbursement for the tax incurred on the benefits coverage and the other $8 ($40 x 20 percent) would serve as an approximate reimbursement of the tax paid on the gross-up payment itself.

Note that this example does not include state tax, Social Security (FICA) and Medicare taxes.

Employees with same-sex spouses or domestic partners will pay about $1,069 more a year in taxes, on average, than a married employee with the same coverage, according to a 2007 report by M.V. Lee Badgett, research director of the Williams Institute, a research group that studies sexual orientation policy issues.

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