Gay Gross-Up

Here in the great state of New York, marriage equality is the order of the day — as it is in five other states, plus D.C.. But due to the Defense of Marriage Act, the federal tax code does not recognize same-sex unions. As a result, as explained by the law firm of McCarter & English, “the Internal Revenue Code treats the value of employer-provided healthcare benefits for a civil union or domestic partner as ‘imputed income’ to the employee. This means that employees who elect domestic partner benefits must pay income tax on the value of those benefits, which is in direct contrast to employees with different-sex spouses.”

To address this inequality, a number of law firms — including McCarter & English, as of this June — have adopted what we here at Above the Law have dubbed the “gay gross-up.” This benefit consists of “a bump in income such that, post-tax, the employees are in the same position as similarly situated employees electing healthcare benefits for their opposite-sex spouses.”

In addition to McCarter, a number of prominent law firms have adopted this policy since our last report. Let’s find out which ones….

UPDATE (8/25/11): We’ve added to the list since it was originally published. See the updated list below.

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As many of you know, here at Above the Law we have been tracking which major law firms offer a non-salary benefit that we’ve dubbed the gay gross-up. As we’ve previously explained, quoting a memo issued by Simpson Thacher, the gay gross-up is “[a] ‘gross-up’ for employees who enroll same-sex partners in the Firm’s health benefits plans to offset any federal, state and local income taxes paid on the value of the partners’ benefits which heterosexual spouses are not subject to.”

Today we are pleased to report that two top firms have joined the club. Kudos to Debevoise & Plimpton and Shearman & Sterling for standing on the side of equality. You can read their announcement memos, issued earlier this month, after the jump.

We have added these firms to our list. By the way, for those firms that would rather appear on a list maintained by the New York Times than one maintained by Above the Law, you should note that the NYT is also monitoring which workplaces provide this perk. The NYT list includes employers of many different types, not just law firms, and features some of the nation’s most innovative companies, such as Google and Facebook and Apple.

With the addition of Debevoise and Shearman, which leading law firms provide this benefit? Let’s take a look….

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The case for same-sex marriage should rest less upon dollars and cents and more upon fundamental principles of fairness (as recently argued by Professor Jaye Cee Whitehead in a New York Times op-ed piece). But it’s certainly the case that money matters should not be overlooked when it comes to marriage equality.

We’ve previously discussed a non-salary benefit that we’ve nicknamed the gay gross-up. Here’s one concise definition: “A ‘gross-up’ for employees who enroll same-sex partners in the Firm’s health benefits plans to offset any federal, state and local income taxes paid on the value of the partners’ benefits which heterosexual spouses are not subject to.” (Currently gay couples in which partners receive employer-provided health benefits are taxed on the value of those benefits, due to the fact that, thanks to the Defense of Marriage Act (DOMA), federal law — including federal tax law — doesn’t recognize same-sex unions.)

The gross-up is not a perk that affects a huge number of employees, to be sure. But having it sends an important message about a firm’s commitment to equality and inclusion.

Where did we obtain that handy definition of the gross-up? From the benefits page of a top law firm that recently started offering this benefit. It’s one of two elite law firms that recently boarded the gay gross-up bandwagon….

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Here’s some very belated bonus news. Earlier this month, the New York office of Linklaters announced bonuses that matched the Cravath scale.

As usual at Linklaters, there was no hours requirement. The news was communicated via individual memo.

A Cravath match, especially in a bonus season when some firms are paying significantly more, kinda sucks isn’t that exciting. A Cravath bonus won’t get a Linklaters associate a pad as palatial as that of Linklaters partner Michael Bassett. Heck, $35K — the top of the Cravath scale — probably won’t even cover the cost of Bassett’s wallpaper.

But we’ll point out two nice things about Linklaters, both relating to tax issues….

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(But at least it has the gay gross-up.)”

Sorry, we’re still waiting for the Biglaw bonus shoe to drop. While you wait, here’s some good news in the Biglaw benefits area (a la Proskauer’s iPad announcement).

On Wednesday, I asked: “Remember Google’s gay gross-up? Barclays is doing it too. Will law firms follow suit?”

At least one law firm is stepping up to the plate to help domestically-partnered employees with their health-benefit-related tax burdens. The firm of Morrison & Foerster issued the following statement to Above the Law, from firm chair Keith Wetmore: “Starting in 2011, Morrison & Foerster will begin offering an additional benefit payment to assist with the tax obligation that same-sex and opposite sex Staff and Non-Partner Attorneys pay when they elect Domestic Partner health benefits.”

This is excellent news, and we commend MoFo for taking this step. Hopefully it will inspire additional firms to move in this direction. Note also that the policy applies not just to same-sex couples, but also to opposite-sex couples who are similarly situated — which might be a way of addressing the criticisms of some that the gay gross-up is unfair to heterosexual couples.

Meanwhile, elsewhere in “law firms being nice to gay people” news, let’s give some props to Shearman & Sterling….

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Meet the Palins.

* The producers of South Park are being sued for copyright infringement. You bastards! [THR, Esq. / Hollywood Reporter]

* “Beware the Male Foreign Associate: He Quotes, He Gropes, He Elopes.” [Last Day at the Office Emails]

* Law prof Ann Althouse comes to the defense of the Palin family. [Althouse]

* Collected commentary on those controversial whole-body imaging systems (aka “naked body scanners”). Does the “SA” in “TSA” stand for “sexual assault”? [Infamy or Praise]

* For those of you who have been following L’Affaire Four Loko, check out the FDA smackdown letter. [Food and Drug Administration]

* Remember Google’s gay gross-up? Barclays is doing it too. Will law firms follow suit? [Bucks / New York Times]

* They like things big in Texas — and that includes law firms. McGuireWoods expands in the Lone Star State. [McGuireWoods]

If you’re a gay employee and have a domestic partner who receives health benefits through your employer, you have to pay more in federal income tax — about $1,000 a year, on average. This is because federal law, thanks to the Defense of Marriage Act (DOMA), doesn’t recognize same-sex marriages. As a result, the feds treat employer-provided health benefits for domestic partners as a form of taxable income (if the partner is not considered a dependent).

(Note, however, that this could change. A federal judge in Boston recently struck down part of DOMA. Stay tuned to find out what happens on appeal.)

Earlier this month, we wrote about a perk that Google extends to its gay employees who find themselves in this situation. As reported by the New York Times, Google “essentially [covers] those costs, putting same-sex couples on an even footing with heterosexual employees whose spouses and families receive health benefits.” Google makes an extra payment to gay employees to make up for the increased tax burden — a perk that we dubbed “Google’s gay gross-up.”

We asked you, our readers, if any legal employers also offer this benefit. As it turns out, several do.

Find out which employers provide this perk — and vote in a poll on its fairness, which was hotly debated in the comments to our prior post — after the jump.

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It’s good to be gay at Google — or a “Gaygler,” as they call themselves. And not just because the company sometimes has a float in the San Francisco Pride parade.

The New York Times recently reported:

[Last] Thursday, Google [began] covering a cost that gay and lesbian employees must pay when their partners receive domestic partner health benefits, largely to compensate them for an extra tax that heterosexual married couples do not pay. The increase will be retroactive to the beginning of the year.

“It’s a fairly cutting edge thing to do,” said Todd A. Solomon, a partner in the employee benefits department of McDermott Will & Emery, a law firm in Chicago, and author of “Domestic Partner Benefits: An Employer’s Guide.”

Why do gay and lesbian employees pay more in taxes to begin with?

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