Fact Check: Health care benefits not taxable but are reportable
FACT: The IRS needs to know who doesn’t have insurance as of 2014.Posted: June 20, 2010 – 3:25am
Times-Union readers want to know:
Is it true that we will have to pay income tax on the health care benefits provided by our employers?
The new health care law seems to provoke a lot of questions – and false claims.
This is one of them.
The value of your employer-provided health care insurance will appear on your W-2 form, but it won’t be considered taxable income. The value is purely for informational purposes, according to the fact-finding sources, FactCheck.org and PolitiFact.com, and various other media outlets who quote tax experts.
A widely circulated e-mail quotes a summary of the bill that became law, FactCheck.org reports: “[Section 9002] requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage.”
But the e-mail incorrectly assumes that the cost will be “added to your gross pay” and that “you will be taxed on the total.”
“See what $15,000 or $20,000 additional gross does to your tax debt,” the e-mail claims. “That’s what you’ll pay next year. For many, it also puts you into a new higher bracket so it’s even worse. This is how the government is going to buy insurance for 15 percent that don’t have insurance and it’s only part of the tax increases.”
The actual health care law says nothing of the sort. The value of your employer-paid insurance is not taxed now, nor will it be when the provision of the new health care law goes into effect.
The requirement begins for the tax year 2011, so employees will see it on their W-2s in 2012.
The chain e-mail also cites an April 5 article by Joan Pryde, a senior editor of the Kiplinger letters, as proof that the tax is coming. The e-mail states, “Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what I just told you about.”
But FactCheck.org, a nonpartisan fact-finding project of the Annenberg Public Policy Center at the University of Pennsylvania, and PolitiFact.com point out that the Kiplinger article actually contradicts the claim. The article says:
“3. A requirement that businesses include the value of the health care benefits they provide to employees on W-2s, beginning with W-2s for 2011. The amount reported is not considered taxable income [emphasis added].”
So if we’re not being taxed for our employer-paid benefits, why include the value on our W-2 forms? PolitiFact.com, the Pulitzer Prize-winning nonpartisan project of the St. Petersburg Times, tells why:
Beginning in 2014, people who do not get health insurance will be fined. The W-2 reporting requirement will help the Internal Revenue Service verify that people have coverage for themselves and their dependents. The requirement will also help the IRS more easily collect a tax on the so-called “Cadillac” health insurance policies, those that cost significantly more than the national average. The Cadillac tax goes into effect in 2018.
FactCheck.org reminds us of a little history: During the 2008 presidential campaign, Republican candidate John McCain did propose to make the value of employer-sponsored health insurance taxable. A response ad for Barack Obama claimed, albeit falsely, that it would be the largest middle-class tax increase in history. But Obama was clearly against the idea and used harsh rhetoric against it in the campaign – until, as president, he said he might be willing to support it as a way to help pay for the plan and if it kept the health care process on track. The idea never made it into the final legislation.
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