Because an employee with a domestic partner is taxed on the value of employer-provided coverage and must pay the employee’s premiums on an after-tax basis, the employee ends up paying significantly more for coverage than an employee covering a spouse. Employers that recognize this disparity and want to provide equal benefits often address this issue by “grossing-up” the income of the employees covering their domestic partners by the amount that the employees must pay in taxes for the domestic partners’ coverage.
Employers that opt to gross-up employees’ salaries should keep in mind that since the employees must pay tax on the gross-up, the amount of the gross-up should include both the amount of the tax that an employee would pay for the domestic partner’s coverage and the amount of the tax that the employee would pay on the gross-up itself.
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SHRM article: Smarter Domestic Partner Benefits (HR Magazine)
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