Gay Google Employees to Receive Compensation for Federal Insurance Penalty

The arguments most heard in the debate over marriage equality involved fairness, freedom, and personal responsibility. But there's another factor that same-sex families must contend with: it simply costs more money be in a committed same-sex relationship than to be straight and married.

In an Oct. 2, 2009 New York Times article, two financial reporters examined the costs that gay and lesbian couples have to pay that their heterosexual counterparts do not. The reporters determined that in the worst case scenario, a committed same-sex couple might pay well over $200,000 in additional expenses that they would have been spared if the federal government simply extended the same benefits and protections to them as married straight couples automatically enjoy. The best-case scenario was considerably cheaper, but still carried a steep price tag at nearly $30,000.

That additional expense is true even for families living in the half-dozen states where marriage equality is legal, because an anti-gay federal statute--the 1996 "Defense of Marriage" Act (DOMA)--singles out gay and lesbian families for inequitable treatment under law. Because federal law denies any recognition of gay and lesbian families, the federal tax code denies those families cash saving breaks and imposes monetary penalties that straight marrieds do not have to shell out for.

One of the biggest expenses comes from employer-provided health coverage for the partners of gay and lesbian employees, which federal tax law treats as taxable additional income--a situation not faced by straight families. But, as the New York Times reports in a June 30 article, one of America's most profitable companies, Google, has taken steps of its own to provide the financial benefits for same-sex families that the federal government refuses to supply. As of July 1, Google is set to compensate its partnered gay and lesbian employees for amount of their tax liability for their spouses' health coverage--a hefty sum that one study indicates can be as high as $1,000+ per year. The compensation will be retroactive to Jan. 1, 2010, the article said.

Though there are other companies that also provide the tax-relieving benefit for same-sex families, Google's size, wealth, and high profile might prove decisive in changing corporate culture so as to make such compensation the rule, rather than the exception, the article said. Providing coverage for the partners of gay and lesbian employees is already something of a standard in America's corporate culture, but relatively few companies take the additional step of closing the financial gap inflicted by federal law.

"It could have a ripple effect, prompting other employers, and particularly employers in the same industry, to take a look at their own benefits package and see whether it would be appropriate to extend those benefits," Kathleen Murray of consulting company Mercer told the New York Times. "When you have a high-profile company doing anything, that tends to get into the mind of the culture, and it can have a more diffuse effect."

The article noted that an early version of health care reform sought to eliminate that tax disparity, but provisions to spare same-sex families from the additional tax burden had disappeared by the final version of the reform measures.

"[Google] has decided it's in their best interest to treat employees with same-sex partners fairly, and that includes picking up the slack when federal law doesn't recognize the diversity of today's work force," the Human Rights Campaign's Daryl Herrschaft commented.

Google also took other steps to level the field for gay and lesbian employees, reported a June 30 New York Times article by Tara Siegel Bernard, one of the reporters who authored the Oct. 2 expose on the additional costs shouldered by same-sex families. The company has changed its policies so that employees no longer need to endure a waiting period for "infertility benefits," and has also extended the benefits defined by the Family and Medical Leave Act to the domestic partners of its gay and lesbian workers.

Divorce and Taxes

Same-sex families face other financial penalties not associated with mixed-gender marriage. An article posted at BankRate.com explains that under DOMA, not only are the annual federal income taxes impossible for gay marrieds to file jointly; other tax issues, such as capital gains taxes for the sale of a home, are also affected.

Explained attorney Jo Ann Cintron, who works out of Boston, MA, and has worked with same-sex couples going through divorce, "If two people get married, the federal government is not interested in that until they try to take advantage of a preferential tax treatment that is granted on the basis of marital status." Added Cintron, "Once they attempt to avail themselves of that, the federal government takes notice."

For mixed-gender marrieds, that can mean a tax break on the sale of a principle residence of $500,000, whereas gay marrieds can only take the tax break available to single people, an amount of only half that much. Though it is the case that if both own the property jointly each of them can take the $250,000 break under certain circumstances, that would not be true in other situations, such as when one partner is a stay-at-home spouse.

Capital gains taxes are also more complicated for gay marrieds who get a divorce, because under federal law, their marriage was never recognized in the first place. Any property awarded to one ex-spouse from the holdings of the other can mean a federal tax bill is on the way.

Even at a state level divorce can be a messier business for gay families if they were married in one state, but then divorced while living in a state that does not offer marriage equality, Because state laws then would not be set up to accommodate divorcing same-sex couples, a lawsuit might be necessary for one spouse to claim property or other support from the other, the article said. According to tax analyst John Roth, "The only way that they could possibly divide the property, if, say, they bought a piece of real estate jointly, would be for one partner to go into court and ask for a partition suit to break the ownership and force the other partner to buy them out."

Added Roth, "But if that were the case, capital gains tax would incur" since DOMA does not allow the IRS to view gay divorce as the end of a marriage between individuals of the same gender.

Even before divorce or the sale of a home, gay families face different tax treatment when it comes to ownership of their first home. The tax credit that benefits first-time homebuyers can be shared by married heterosexual to the tune of $7,500; not so for gay marrieds, however, who still could, in theory, claim a $3,750 tax credit, as could unmarried straight couples.

In that case, the government's refusal to acknowledge gay marrieds could actually benefit a same-sex couple, since straight marrieds cannot claim the $7,500 break if either one owned a home in the previous three-year period, whereas if one member of a gay couple had owned a home that recently, then the other could theoretically still claim the tax benefit.

However, there are strings attached; the article quotes Roth, who said, "People usually sell their house within five (years) to seven years, which is only about one-third to one-half of the way through the recapture period." Noted Roth, "The minute you sell that house, you are going to trigger full recapture of any credit that you claimed."

Taxes are always a fraught issue, with the potential for missteps and missed opportunities for breaks; for gay families, the BankRate.com article cautioned, that's even more the case. The solution? Get professional tax advice. Said Roth, "A lot of these same-sex couples are going to have to go out and hire professional financial help."