As we all stare down Tax Day today, it seems an appropriate time to remind us that there are punitive federal taxes that penalize both corporations and their employees who go to work every day under policies that assert that working families should be treated equally.
Equal pay for equal work is not only a fundamental American value -- it is a core business value. In today's economy, health benefits, including those for family members, constitute a significant part of employee compensation. Recognizing that their lesbian and gay employees deserve equal pay for equal work and that they need a diverse workforce to compete in today's economy, more than half of Fortune 500 companies now offer health benefits to their employees' same-sex domestic partners -- up from only one in 1992.
But here's the catch: our tax system does not reflect this advancement in true meritocracy in the workplace. Under current federal law, employer-provided health benefits for domestic partners are subject to income tax and payroll tax. As a result, a lesbian or gay employee who claims this benefit takes home less pay than the colleague at the next cubicle. This is not only unfair -- it's bad public policy.
Here is how it works: Steve earned $32,000 per year and owed $3,155 in federal income and payroll taxes. Steve's employer also paid the monthly premium for Steve's family health coverage, which also covers Steve's wife, Emily. None of this coverage was taxable under current law. Steve's co-worker, Jim, earned the same salary and had the same coverage for himself and his partner, Alan. However, the value of the coverage provided to Alan is subject to federal income and payroll taxes. As a result, although Jim and Steve earn the same salary, additional income is imputed to Jim, and his federal income and payroll tax liability increases from $3,155 to $4,710 based upon an average-priced family health premium. This represents nearly a 50 percent increase above Steve and Emily's tax liability.
For many families, especially those with modest incomes, the tax hit is more than they can bear. In Steve and Alan's case, the additional $1,700 in tax liability is beyond their means. Put simply, taxing these benefits can exclude families from employer-provided benefits.
Health and safety regulations, wage and hour protections, non-discrimination provisions, and reasonable workplace accommodations are all part of our national commitment to equal work for equal pay. Yet America's lesbian and gay families are not compensated equally for their labor. That's unacceptable in 2010. The good news is that the nation's top businesses are ahead of the government in attempting to provide equal compensation.
It's time for the federal government catch up with America's leading corporations and to stop taxing domestic partner benefits. For many years, Congress has considered legislation, the Tax Equity for Health Plan Beneficiaries Act, which would finally eliminate income and payroll taxes on employer-provided health benefits. In fact, this past November, the House of Representatives passed this bill as part of its health reform package. Unfortunately, this critical provision for our families was left behind during the final negotiations. However, we are continuing our fight to get this legislation over the finish line. This bill remains a common-sense provision that brings our tax system up to date with corporate best practices. That's why top corporations such as American Airlines and Chubb among others, strongly and vocally support this legislation. Congress must finish the job and end this unfair, anti-business policy once and for all.
Joe Solmonese is the President of the Human Rights Campaign; Donna Griffin is Senior Vice President and Chief Diversity Officer, The Chubb Corporation; and Will Ris is Senior Vice President, Government Affairs, American Airlines.