Does "Gross Up" Pay for Taxes on Benefits to Gay & Lesbian Employees Violate State Anti-Discrimination Laws?

According to The New York Times, Google is going to begin covering a cost that gay and lesbian employees must pay when their partners receive domestic partner health benefits. This is intended to compensate these employees for an extra tax that heterosexual married couples do not pay. Employer-provided health benefits for domestic partners are counted as taxable income if the partner is not considered a dependent. The tax owed is based on the value of the partner’s coverage paid by the employer. The Tax Prof Blog explains the tax aspects here, and notes that other companies such as Cisco, Kimpton Hotels, and the Gates Foundation provide similar benefits.

While it is easy to understand why a company might adopt such a policy, is it legal? I am not aware of any cases testing the issue, but it is not too hard to mount an argument that this benefit violates the law.

Twenty-one (21) states and the District of Columbia prohibit discrimination based on sexual orientation. By way of example, California’s law prohibits discrimination “on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, or sexual orientation.” The “gross up” benefit is extra compensation and is provided based exclusively on sexual orientation. Conversely, it is denied to heterosexual employees on the same basis, their sexual orientation. This appears to be a direct violation of several states’ anti-discrimination laws.

In the Times article, Google’s vice president for “people operations” also justifies the benefit by noting that ”heterosexual couples can avoid the added tax by marrying.” The implication is that the employees who are heterosexual and single have no one but themselves to blame for any income disparity they suffer. However, this is also problematic in that California and several other states prohibit discrimination based on marital status. Moreover, the denial of extra compensation to married employees could run afoul of these provisions as well.

The “gross up” benefit provides homosexual employees a benefit in the form of extra compensation that is not provided to similarly situated heterosexual employees based on their orientation and/or marital status. I’m no plaintiff’s attorney but it seems to me that Google and other companies offering these benefits would be wise to remember my first rule of employment law — no good deed goes unpunished.

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