TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, January 30, 2013

NY Times: For First Time, Workers See Total Cost of Their Health Insurance on W-2

W-2New York Times:  To Open Eyes, W-2s List Cost of Providing a Health Plan:

As workers open their W-2 forms this month, many will see a new box with information on the total cost of employer-sponsored health insurance coverage. To some, it will be a surprise, perhaps even a shock....

The disclosures, required by the 2010 health care law, are meant to make workers more cost-conscious. Health benefits are still tax-free. But labor unions and employer groups say it could be easier to tax them in the future, now that employers must report their value to the government.  

The new information appears in Box 12 of the standard W-2 form, with a two-letter code, DD. The box shows the “cost of employer-sponsored health coverage.” And that amount is not taxable, the IRS says on the back of the form....

In 2012, according to an annual survey by the Kaiser Family Foundation, premiums for employer-sponsored health insurance averaged $5,615 a year for single coverage and $15,745 for family coverage. Over five years, the costs have increased 25 percent for individual coverage and 30 percent for family coverage.

“Health coverage is a big piece of people’s income and a large part of the social welfare budget,” said C. Eugene Steuerle, a tax economist at the Urban Institute. “But the benefits are not taxable, and most of the spending is hidden, so we don’t consider the trade-offs. If we want to get control of health care costs, people have to be aware of them.”

That is the goal of the disclosure requirement, which was proposed by a bipartisan group of senators: two Republicans, Charles E. Grassley of Iowa and Michael B. Enzi of Wyoming, and two Democrats, Max Baucus of Montana and Ron Wyden of Oregon. ...

The tax-free treatment of employer-provided health benefits is the largest tax break in the tax code, costing the government roughly $180 billion a year in lost revenue, or 80% more than the home mortgage interest deduction, according to the administration.

(Hat Tip: Mike Talbert.)

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Well intentioned idea, but implementing citizen knowledge of health insurance costs via compulsory employer disclosure in a box on Form W-2 is a costly drag on the productive economy, and, frankly, silly. This isn't the 1950s when everyone prepared their own tax return and gave their W-2 a close reading. No one today cares about more than Boxes 1 and 2 on their W-2, or has any reason to.

Posted by: Jake | Jan 30, 2013 6:50:12 PM

Wait until workers find out how much "free" healthcare costs, but you'll never see that on a W-2.

Posted by: Woody | Jan 31, 2013 7:57:38 AM

Heath insurance "costs" the government 180 billion. Huh?

Posted by: Tiffany | Jan 31, 2013 1:20:31 PM