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'Grossing Up': Equity or Bias?
January 29, 2010
Syracuse University may be on the cutting edge of promoting equity for its gay and lesbian employees. Some of the university's straight employees, however, say Syracuse needs to focus its limited funds on benefits for everyone -- and recognize that it can't be held responsible for the inequity of marriage laws in the United States.
The battle is over "grossing up" -- a human resources term for paying someone on top of salary levels so that the employee takes home the full salary amount. So if someone would owe $10,000 on a $50,000 salary, grossing up would mean paying that person $60,000 (plus whatever tax is needed on the extra $10,000 and so forth) so that $50,000 becomes take-home pay.
Members of the Business Coalition for Benefits Tax Equity
Aetna, Hartford, CT
A.H. Wilder Foundation, St. Paul, MN
Alcoa Inc., Pittsburgh, PA
AMR Corp. (American Airlines), Fort Worth, TX
American Benefits Council, Washington, DC
Ameriprise Financial Inc., Minneapolis, MN
Bank of America Corp., Charlotte, NC
Bausch & Lomb Inc., Rochester, NY
Best Buy Co. Inc., Richfield, MN
Bingham McCutchen LLP, Boston, MA
BlueCross BlueShield of MN, Eagan, MN
Boehringer Ingelheim USA Corp, Ridgefield, CT
Capital One Financial Corp., Falls Church, VA
Carlson Companies, Minneapolis, MN
Charles Schwab & Co Inc., San Francisco, CA
The Chubb Corp., Warren, NJ
Citigroup Inc., New York, NY
CNA Insurance, Chicago, IL
College & University Professional Association for Human Resources (CUPA-HR), Knoxville, TN
Corning Inc., Corning, NY
Cullen Weston Pines & Bach LLP, Madison, WI
Day One, South Portland, ME
Deloitte LLP, New York, NY
Delta Air Lines Inc., Atlanta, GA
Diageo North America, Norwalk, CT
The Dow Chemical Co., Midland, MI
Eastman Kodak Co., Rochester, NY
The ERISA Industry Committee, Washington, DC
Ernst & Young, New York, NY
Exelon Corp., Chicago, IL
General Mills Inc., Minneapolis, MN
GlaxoSmithKline, Research Triangle Park, NC
Herman Miller Inc., Zeeland, MI
Hewlett-Packard Co., Palo Alto, CA
HSBC North America, Prospect Heights, IL
IBM Corp., Armonk, NY
ICMA Retirement Corp., Washington, DC
Intel Corp., Santa Clara, CA
J.P. Morgan Chase & Co., New York, NY
KPMG LLP, New York, NY
Levi Strauss & Co., San Francisco, CA
Marriott International Inc., Bethesda, MD
Massachusetts Mutual Life Insurance Co., Springfield, MA
Medtronic Inc., Minneapolis, MN
Merck & Co. Inc., New York, NY
MetLife Inc., New York, NY
Microsoft Corp., Redmond, WA
MillerCoors Brewing Co., Chicago, IL
Moody's Corp., New York, NY
Morgan Stanley, New York, NY
Motorola, Schaumburg, IL
Nationwide, Columbus, OH
Nike Inc., Beaverton, OR
PG&E Corp., San Francisco, CA
PricewaterhouseCoopers, New York, NY
Project for Pride in Living, Minneapolis, MN
Prudential Financial, Newark, NJ
Quorum Review Inc., Seattle, WA
Replacements Ltd., Greensboro, NC
Russell Investment Group, Tacoma, WA
Sempra Energy, San Diego, CA
Society for Human Resource Management (SHRM), Alexandria, VA (more information at shrm.org)
State Street Corp., Boston, MA
Texas Instruments, Dallas, TX
Thomson Reuters, New York, NY
TIAA-CREF, New York, NY
Time Warner Inc., New York, NY
Verizon Communications Inc., New York, NY
World at Work, Washington, DC
Xerox Corp., Rochester, NY
Domestic Partner Benefits: Grossing Up to Offset Imputed Income Tax
The information in this document does not constitute legal advice. For assistance with legal questions specific to your situation, please consult an attorney.
A number of employers have looked to account for the income tax burden of domestic partner benefits by "grossing up" an employee's salary, similar to grossing up award or bonus payments to an employee. For example, a holiday bonus of $500 would be reported for tax purposes at a greater value so that the employee actually receives $500 after taxes. Employees that are taxed on the imputed value of domestic partner benefits generally must pay those taxes each payroll period.
The Human Rights Campaign Foundation is aware of three large, for-profit employers and one large non-profit family foundation that have implemented this benefit.
Taxation of Domestic Partner Benefits
Business Coalition for Benefits Tax Equity - a group of more than 70 major U.S. employers that support legislation to end the federal tax disparity
How "Grossing Up" Works: An Example
Consider an employer that wants to gross up an employee in the 20-percent tax bracket. The fair market value of the employee's non-dependent domestic 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.
This example appears in "Domestic Partner Benefits: An Employer's Guide, 5th Edition." Copyright 2009 Thompson Publishing Group, Inc.
Employers can notify employees of the gross-up benefit through general benefits eligibility documentation available to all employees.
EXAMPLE: Who is eligible for benefits?
All employees regularly scheduled to work 20 or more hours each week are eligible for all benefits. Employees working less than 20 hours per week are eligible to participate in the Retirement Plans and Employee Matching Gifts Program. Coverage will begin on your date of hire. You may enroll your eligible dependents for medical, dental and vision benefits. Dependents are eligible to receive Employee Assistance Program (EAP) services, regardless of enrollment in other benefit plans. Your eligible dependents include:
Your legal spouse
Your same- or different-sex partner. To be eligible to enroll in the plans, your partner must meet the criteria outlined under Domestic Partner Eligibility. Any premium contributions made by [EMPLOYER NAME] on behalf of a non-dependent partner are considered taxable income. However, [EMPLOYER NAME] pays for the tax impact on your behalf; therefore, there is no impact to your net pay. Payroll will gross-up your salary for the value of the insurance provided to your domestic partner. As a result, your gross wages reported on your regular pay stub and in Box 1 of your W-2 will be higher by the amount of the insurance (including the gross-up).
Your unmarried children (or step children in your custody) up to the age of 25 who depend on you for support (this includes your partner's children)
Any dependent child who is incapable of self-support because of a physical or mental disability
Sample Proposal for Grossing Up
Use this sample proposal as a guide when advocating for your own employer to implement grossing up as a standard for employees enrolled in domestic partner benefits that pay an additional imputed income tax.
Proposal for Grossing Up to Offset Imputed Income Tax