Notice any different about your form W-2?
Take a look at Box 12. See anything that wasn’t there last year?
The value of health care coverage provided by your employer is now reported in Box 12 with Code DD to identify the amount. The amount reported in the box should include both the portion paid by your employer and any amount paid in by you.
So why is this information showing up on your form W-2 now? Under the Affordable Care Act – you may also refer to it as Obamacare or the health care act – most employers must now report the cost of your health care plan (a few small businesses are still exempt from reporting under the transitional relief offered by IRS).
Chances are that number is more than you thought. A lot more.
The average cost of healthcare for a typical American family of four in an employer-sponsored health plan in 2012 was $20,728. On average, employers paid $12,144 of that total cost while employees paid the rest. Employer contributions for health care plans for the typical American family are now nearly equivalent to the salary of a full time employment for a worker who is paid minimum wage.
And it’s not taxable.
That’s why most Americans don’t even know how much their health care coverage costs. It’s one of those benefits that many of us take for granted because we don’t see it on a tax or wage form.
But now that’s changing. The reporting requirement under the new law will make many more taxpayers aware of the actual cost of their health care benefits.
What’s not changing is the tax treatment of those benefits. It remains federal income tax free to you as an employee. So if you see wages of, say, $50,000 in Box 1 and benefits marked “DD” for health care insurance paid in $15,000 in Box 12, your income for purposes of calculating your federal income tax liability remains $50,000.
The requirement that the benefits are reported on your form W-2 is “for informational purposes only.” The purpose of the rule, according to the IRS, is to “provide employees useful and comparable consumer information on the cost of their health care coverage.” And believe it or not, that specific requirement wasn’t a partisan move: it was actually proposed by a bipartisan quartet made up of Sen. Max Baucus (D-MT); Michael B. Enzi (R-WY); Sen. Charles E. Grassley (R-IA); and Sen. Ron Wyden (D-OR).
But let’s be honest: is it really just for informational purposes? The IRS and Congress both say yes – for now. But a number of taxpayers fear that it’s not. That fear isn't totally unfounded. The tax free treatment of health care insurance benefits is a whopping $180 billion tax break to employees. And while for now raising the notion of taxing health care coverage – especially now that it’s mandated – would be political suicide, that doesn't mean that won’t change. You know that somewhere, some Senator has circled that number – $180 billion – in red ink.
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