How can you tell it’s an election year? By the sheer number of scare tactics and outright lies being shuffled about.
An email is making the rounds – again – suggesting that health care benefits will appear on forms W-2 and will be taxed. I was alerted to this fact on yesterday via reader email and have noticed a significant spike in similar search queries throughout the day.
Here’s a partial quote from the email:
Starting in 2011-next year-the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided.
It doesn’t matter if you’re retired. Your gross income WILL go up by the amount of insurance your employer paid for. So you’ll be required to pay taxes on a larger sum of money that you actually received. Take the tax form you just finished for 2009 and see what $15,000.00 or
$20,000.00 additional gross income does to your tax debt. That’s what you’ll pay next year. For many it puts you into a much higher bracket. This is how the government is going to buy insurance for fifteen (15) percent that don’t have insurance and it’s only part of the tax
increases, but it’s not really a “tax increase” as such, it’s a redefinition of your taxable income. Also, go to Kiplinger’s and read about the thirteen (13) tax changes for 2010 that could affect you.Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November. So vote intelligently,based on your values.
The same email tells you to check out thomas.gov for verification (the only good bit of advice in the email – it’s always a good idea to go straight to the source and thomas.gov is the Library of Congress’ official site).
Scary, right?
Only if you visit thomas.gov, you’ll see that the author of the email doesn’t quite have his facts right. While it is true that there is a reporting requirement, it is not for purposes of paying additional taxes. You will not be taxed on this amount.
Here’s what the new law really says: employers must report health care benefits for employees beginning after December 31, 2010 – in other words, for the 2011 tax year. You won’t see it on a form W-2 until 2012. It will not affect your taxable income. In fact, a summary of this very provision in the Code is included in the bogus email that I received:
(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee’s gross income (excluding the value of contributions to flexible spending arrangements).
“Excludable from the employee’s gross income” – that means that it doesn’t count towards gross income. Got it?
So if it’s not taxable, why include the mandatory reporting requirement at all? There are a couple of reasons:
One, the reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. As you may be aware, there is a requirement beginning after 2013 that those who can afford coverage get it (help is available for those than cannot afford it on their own) if it’s not otherwise provided. Those that choose not to be covered will be fined. Exceptions apply.
Two, the so-called Cadillac tax on high-dollar insurance plans goes into affect in 2018. The new reporting requirement will allow the IRS to identify taxpayers who are covered under these plans. The thresholds for the policies are $10,200 for individual policies and $27,500 for family policies; these amounts will be indexed for inflation. It’s important to note that the tax on these plans is on the insurer, not the insured, so that the amount of the plan will not affect the overall tax payable by the W-2 recipient.
That said, to reiterate, there is no reporting requirement for 2010. The reporting requirement begins in the 2011 tax year. Under the new law, the reporting of employer-provided health care benefits on your form W-2 will not affect your taxable income. You will not pay tax on the amount of employer-related health care benefits (some exceptions, such as HRA distributions which are not for reimbursed expenses apply just as they always have).
If you’ve followed the blog, you know that I am not a fan of many of the provisions of the new law. But I feel very strongly that if you’re going to criticize the new law, you should at least do it fairly and accurately. Check out other sites, ask your tax pro or better yet, read the law. You can find links to the actual text of the law as well as some more commentary at one of my prior posts on the subject. You can check out some of the highlights of the bill here.
One last favor? If you get that email, just delete it. Don’t forward it. It just adds to the confusion – and we have plenty of that in the Tax Code already.
I always assume any piece of forward mail I get is lying. Any forwarded mail.
Just an example. I’m a lefty democrat, and so are most (but not all) of my friends. I have heard many of them complain about various emails they get about Obama being a Muslim, having been born in Kenya, wanting to give healthcare (and hugs) to illegal immigrants, whatever. But upon questioning, many of these people fully believe that Sarah Palin tried to ban Harry Potter books.
Really, if any of this stuff was true, you would have heard about it through real media, not e-mails.
Thanks for the clarification. I forwarded it three of my former DuPont guys. Pensioners worry.
rwp
The Obama-haters will do almost anything. The “death panel” business. This bogus email. I got one blaming the “godless socialists (guess who they are?)” for removing “In God We Trust” from the new $1 coins (actually, the slogan is engraved on the rim of the coin, per instructions by a Republican congress during the Bush Administration — and now Congress had mandated that it be pot back on the face).
Now they’re blathering about how the stimulus didn’t work and, actually, destroyed jobs. Anyone with a lick of economics education knows better than that.
I would like to know what this means, are they talking about all health plans or just the flexiable health plans? (excluding the value of
contributions to flexible spending arrangements).
I have recieved this email and as I have learned from the past it is always best to research it before you forward it. So I waould like it if you explain to me this part of the bill.
Thanks,
Mary
Kind of sick of these emails trying to stir up fear. Taxes are scary enough already. We often struggle with trying to convince people with the actual truth because they have become so convinced due to these emails. Thank you for taking the time to document the truth.
Here is a 411! We have no one to blame but ourselves for the “MESS” our country is in today. We “are the morons” who put these people in office. We have let our government take away all principles that made us a great nation. When we allowed the taking of “IN GOD WE TRUST” out of our vocabulary our country has begun to crumble. You see when you take “GOD” out of the equation you will search & search for the answer; but you will never solve the problem. Our fore-fathers built this nation of CHRISTIAN principles, they knew how to “SOLVE THE EQUATION”,do the history.
REMEMBER: GOD IS THE ALPHA & THE OMEGA
(Beginning & End) Meaning God can give and he can take away!
(I ought not to do this but I just can’t resist!)
Okay, let’s “do the history”.
Is it really true that so-called CHRISTIAN PRINCIPLES created a Constitution that recognized slavery, counted “negroes” as 3/5 of a person for census purposes, allowed the importation of slaves for another 20+ years AND absolutely insisted that the federal Government and “institutions of religion” be forever separated?
The man who contrinuted the most money to the Revolutionary cause was Jewish.
Jefferson, Washington, Madison, Monroe, and most late 18th-century “intellectuals” were agnostics, and were leery of “established” religion.
The motto “in God we trust” (as well as “. . . under God . . .” in the Pledge of Allegiance) were not “officially” sanctioned until Congress did so in the mid-1950’s.
It may sound great, but it’s a myth that the United States was founded on a basis of overt and recognized “Christian Principles”. For that matter, depending on whom you ask, to this day the term “Christian Principles” has a widely variant and often contradictory collection of meanings.
I’m not trying to undermine “Christian Values”, but history actually tells us that the U.S. was founded on what were considered to be “enlightened” (non-religious) values that predominated in educated circles in the late 18th Century.
WCC, but he’s not the Iota Rho Sigma…
“Two, the so-called Cadillac tax on high-dollar insurance plans goes into affect in 2018. The new reporting requirement will allow the IRS to identify taxpayers who are covered under these plans. The thresholds for the policies are $10,200 for individual policies and $27,500 for family policies; these amounts will be indexed for inflation. It’s important to note that the tax on these plans is on the insurer, not the insured, so that the amount of the plan will not affect the overall tax payable by the W-2 recipient.”
– BASICALLY, the email is 100% correct. Why? Because the cost of insurance will increase because of this bill, which will probably push $5,000 individual policies to $10,000. This will end up taxing much more than supposed “cadillac” policies, unless you’re in a union (that will change, too, once FAIR politicians are elected).
November is going to be so sweet! I can’t wait until all of these “lefty democrats” are bounced out of office. The fact that the democrats refuse to recognize that all of these social programs cost a massive amount of money and as we all know its on 50% of the nations tab. The fact is we live in an entitlement era and that’s causing this nation to struggle. The left is the weak point in our society. Continue to focus on ways to increase the national debt and see where that gets you in an election year. Goodbye morons!
What you say is correct, but what you don;t seem to point out is that the individuals will be seeing far increased costs in premiums. Yes the 40% tax is on insurance co’s, but you also fail to state that the insurance co’s are free to pass this on to consumers in higher premiums. That means two fold – EVERYONE’s premiums (low and high) will be going up – this jsut gives the insurance co’s free reign AND EXCUSE to raise everyone’s premiums.
Boston, I completely agree with what you’ve said about the increase in premiums. If you read some of my prior posts on the subject, you’ll see that is one of my main complaints with the reform bill – there’s no check on the insurance companies. I didn’t want to get into that for this post though, just wanted to diffuse the obvious efforts to create a different kind of panic. 😉
Not necessarily. A major rationale behind health care reform is that those who do have insurance tend to be at higher risk of having medical costs. Particularly, the “young and healthy” tend to be among the most “underinsured”. If everybody has to have health insurance, then insurance companies cxan lower their rates, as their overall costs per customer will decline.
There’s a lot of “what ifs” etc associated with this idea, but no more so than insisting that premiums will rise or, more significantly, that they will rise by a certain amount.
Well if your boss tells you that you need to start paying for the paper you use, then you will make sure that cost is reflected in your pay.
Thanks for clarifying this subject. My boss had received the scare tactic email and was explaining the gist of it to me a few moments ago. I was nearly in tears and in a panic mode thinking I would have to pay thousands of dollars of taxes next year on money I never see. I’m glad I did a little investigative work and that you were able to explain it in plain English. Plus, your blog was at the top of the search list!
“that will change, too, once FAIR politicians are elected”
So, not in our lifetime?
Thanks for the clarification. Appreciate the insight and clear reporting with sources.
But the government will now start tracking our medical benefits, and they will start taxing them (the cadillac plans) in 2018. Insurance premiums are already on the rise in anticipation of the added costs of Obamacare. Capital gains taxes, dividend taxes, and income taxes are all going up next year. The bottom line, is that money is going to be sucked out from private individuals — this means less money for the economy, less money working class. And yes, less money for the wealthy, but how do you think income and capital is created? By the government? Do you really want a Soviet Union style economy?
Zack-I agree, they are “tracking” the value of employer health insurance.
I think they will eventually tax it. God bless our young citizens if this is not all overturned.
One clarification: Health care benefits are already, and will continue to be, taxed for same-sex (or other unmarried) couples where one person gets health care benefits from the corporation the other works for or is retired from. For example: I am covered under my partner’s company health care plan (she is retired, but this also applied when she was working) and the part of the company-paid benefits that go to me are taxed. The part that goes to her are not taxed. This will not change with the new law. (It was supposed to but – surprise! – the Republicans knocked this down as part of the negotiations.) So, unmarried partners, nothing will change for us either, unfortunately!
When a business expense goes up who ends up paying the price? Consumers or employees. Every tax over the years has went up when we were told it wouldn’t (SSI, Medicare, Sales). If a company ends up paying taxes for health care it will be passed on to the employees or consumers. It seems this article is a little misleading like the email. Who always ends up paying a higher % of their income for these social programs? The middle class. So we have to work to give up more for someone that don’t want to work to get more.
I work in Human Resources and Benefits. I can tell you in no uncertain terms Healthcare reform is a disaster. The law is still being interpreted and employers and employees are concerned. Next year most employers will be raising premiums about 9%. Healthcare Reform will have an impact of an estimated 3 – 6%, but no one is absolutely sure.
By the way, if you think reporting healthcare value on your W2 is innocent you really are not paying attention to what is going on. This current administration is involved in so many backroom deals and ways to get around having to pass laws in congress you would be amazed. The goal has always been Single Payer (which might actually be a good thing if done properly) and to increase taxes. Face it, with Trillions in debt do you think taxes will go down?? Do not be a fool. You will have many things taxed and you should get prepared for it. In Britian for example they “enjoy” a 70% tax burden. Our “out of the box” thinking politicains think that is an excellent idea. They do not understand stimulating an economy. They actually hold onto failed theories, becasue they “feel” good.
So while I applaud civility, don’t let people convince you that you must accept everything you are sold or told. You should be skeptical and challenge what you are told. I have never seen such dishonesty in politics in my life. The funny thing is this administration acts like they are telling you the truth when they knowfull well they are not. They truely believe they know better than you do what is good for you. Their intention is to push people into a society they believe is good based on a value system with governement reigning supreme. All I can say is wake up!
Rick – I do think that the health care act will affect our collective bottom line (in fact, if you read the prior pieces on the subject, you’ll note that I am worried, in particular, about the burden on small businesses). However, I think that opposing reform by spreading lies (which is what this email was about) isn’t the way to approach the flaws in the act. You’re right that civility is important. Honest dialogue is just as important. 😉
I recommend that everyone read “Perfectly Legal: the covert campaign to rig our tax system to benefit the super rich — and cheat everybody else” by David Cay Johnston. Just be sure to take your blood pressure meds first. All you Republicans, don’t worry, Mr. Johnston is a registered Republican, and all he desires is a truly level playing field, not one stacked in favor of the corporatocracy. He also wrote “Free Lunch: how the wealthiest Americans enrich themselves at government expense and stick you with the bill”. Both books are well-documented.
I’m disgusted beyond measure with those who say we can’t afford health care, but nary a peep that we can’t afford Bush’ wars. I’m furious that the blood-sucking insurance companies were allowed any role. Google Wendell Potter, an insurance executive who had an attack of conscience (gasp) and testified before of the cruel fraud perpetrated on customers. Congress had access to his testimony, but I guess they were swayed by the $1.4 million/day lobbying by insurance and Big Pharma more than considerations of the well-being of the American public. I personally put copies of Mr. Potter’s testimony into the hands of staffers for Sens. Bingaman and Udall, and Congressman Teague. I hope those companies are not permitted to deduct lobbying costs from their tax bill, but I wouldn’t bet that we’re not subsidizing the lobbying that produced such a lame law.
I just love this part . . . .
“It’s important to note that the tax on these plans is on the insurer, not the insured, so that the amount of the plan will not affect the overall tax payable by the W-2 recipient.”
…..Right, and who, but who do you think that insurer will pass the cost of the tax imposed to. . . .
duh? That would be you and me.
WAKE UP AMERICA. — I guess I should be flying my American flag upside down – we are distressed!
Thanks so much for this article.I had heard the same “rumor” and immediately set out to see what I could discover. I was particularly worried because I am supporting my husband while he earns his degree. Our current income level qualifies us for assistance but if I had to include my employer paid benefits it would increase our income so much as to disqualify us for anything except unsubsidized loans! I did some additional research with your links and I have to say I am going to sleep better tonight than I did last night. Thanks for the piece of mind for next year. We’ll see what happens in 2018.
Hi,
I am retired and now a legal permanent resident in Costa Rica. It is now required by Costa Rican immigration that all foreign residents contribute to
the government run health care system here. Which I feel is to my advantage to
begin with. It is a very well run system that covers all health care costs including medicine and dental. I pay nothing out of pocket except for the $65.00 a month premium I pay. Which I feel is quite modest in consideration of what I receive for it. So my ultimate question is this going to be acceptable
in the US to eliminate any ¨penalties that may be imposed for any mandentory
health care coverage that is required. I would think logically they would not require health care coverage for me when I no longer reside in the US. I would´nt be suprised if they had the attitude ¨well he can spend $700.00 for a plane ticket every time he has a doctor appointment¨. I would appreciate it greatly if you could let me know. And yes I too recieved the panic laden e-mail
informing me that my health care cost incidently that I recieve as a retiree from the Motion Picture Industry. But obviously don´t use living in CR. And sadly I recieved it from a good friend. I guess he is just as gulible as the next guy. I will forward to him your article.
Best Regards and Puravida de Costa Rica
Paul J Powell
Grecia Alajuela, Costa Rica
If the government is not planning on taxing the premiums, why is all this reporting of them necessary? It never has been until now. when the government implements some change, they have an ulterior motive. The scariest comment the taxpayer can hear is:” this new rule won’t change a thing.” Beware : you can always tell when a bureaucrat is lying: their lips are moving.
The cost of the tax is paid not by the insurance company or the insured, but by the sponsor of the plan (your employer in many cases).
That’s why you’ll see employers move away from “Cadillac” taxable plans to get under the wire.
And the tax is applied above the threshold. So if it’s an $11k plan and the threshold is $10,200 on an individual, the taxable portion is $800. That’s ~$300 bucks for the company that provides it.
I agree that we must be most causious of what we receive on the internet and in e-mail blasts with half truths. While your points are well made they fail to identify the slipery slope this program will take us down. It is in my opinion a stepped process from reporting that will become taxing after the next election and ultimatley leads to universal health care with the government in control. It takes the cost burden of health insurance off the large employer and shifts it to the individual that will unknowingly look to national healthcare as the true impacts of Obama Care begin to manifest themselves. These are not scare tatics. They are the reality of the polical process of compromise and the current agenda of large centralized governmental control. They are increasing the powers of the IRS not decreasing the tax code. They are making it even more complicated. Yes we are to blame for who was elected so spend the time to communicate with your Congressman and get to know how he or she votes. Are they truely representing you?