TaxProf Blog

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

Saturday, February 2, 2013

WSJ: Step 1, Include Health Insurance Cost on W-2. Step 2, Tax It?

W-2Following up on Wednesday's post, NY Times: For First Time, Workers See Total Cost of Their Health Insurance on W-2: Wall Street Journal Tax Report:  Is Taxing Health Plans Next?, by Laura Saunders:

When you receive your W-2 for 2012, pay attention to a surprising new number on the form, especially if you are an upper-income-bracket taxpayer. The figure could threaten one of your most valuable tax breaks. ...

The new number appears in Box 12 after the symbol "DD." It shows the cost of your employer-sponsored health plan, if you have one. ...  The new number, mandated by Congress as part of the 2010 health-care overhaul, shines a light on an important but little-understood benefit. In most cases, health-plan costs are "excluded" from income, which means they are tax-free. But most workers have been unaware of how large this benefit is because they haven't seen it on their tax returns.

For many people, the health-plan tax break is more valuable than the highly popular mortgage-interest deduction on Schedule A, says Kelly Davis, an employee-benefits specialist at accounting firm CliftonLarsonAllen. For example, the first-year deduction on a $400,000, 30-year mortgage with a fixed rate of 3.75% is $14,874, says Keith Gumbinger, an mortgage analyst at HSH. In comparison, the average health-insurance premium last year was $16,427 per family at firms with many higher-paid workers (earning $55,000 or more), according to a survey by the Kaiser Family Foundation. In New York City, health insurance can cost $20,000 or more per family.

Since 1997, employer-sponsored health care has exceeded the mortgage-interest deduction as Uncle Sam's most costly tax break, according to estimates by Congress's Joint Committee on Taxation. Employer-sponsored health care costs the federal government $145 billion of revenue a year, compared with $93 billion for mortgage interest.

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Certainly I wouldn't put it past those tax-and-spend Republicans in the House, to repeal this tax break just to give WSJ writers something to complain about.

Someone should ask why they keep taxing the cost of group-term life insurance for employees in excess of $50,000. That's a number that hasn't been raised in more than three decades. Public policy apparently is to discourage employers from assisting survivors of deceased employees. And the taxable cost is not the actual cost -- some younger employees pay more in tax on the IRS-assigned value of the benefit, than it would take for them to buy the same coverage.

Posted by: Bob | Feb 2, 2013 3:37:16 PM

tax the health insurance costs paid by my employer?
what do they think we have, a flat tax?

Posted by: Foster B. | Feb 6, 2013 2:48:53 PM