A Project of The Annenberg Public Policy Center

Health Care Law and W-2 Forms


Q: Does the new health care law require workers to pay income tax on the value of employer-provided health insurance?

A: No. The value will appear on employees’ W-2 forms for information purposes, but will not be considered taxable income.

FULL QUESTION

I would like to know how accurate the following e-mail claim is:

You really need to read this……starts next year

This is supposed to be part of the new Health Care Bill.

The originator of this notice contacted his Congressman about House bill HR3590 the health care bill, that just passed, and asked for a summary of changes. An aid directed him to go to www: thomas.gov ; enter HR3590 in the search Box and look for summaries.

Starting in 2011 (next year folks) your W 2 tax form sent by your employer Will be increased to show the value of what ever health insurance you are Given by the company. It does not matter if that’s a private concern or Governmental body of some sort. If you’re retired ? So what; your gross Will go up by the amount of insurance you get.

The dollar value (cost of what the company pays for your insurance) will be considered income and added to your gross pay. You will be taxed on the total.

[EET ]
You will be required to pay taxes on a large sum of money that you have never seen.

Take your tax form you just finished and see what $15,000 or $20,000
Additional gross does to your tax debt. 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 % that don’t
Have insurance and it’s only part of the tax increases.

Not believing this I researched the summaries and here’s what I read:

On page 25 of 29 :

TITLE IX REVENUE PROVISIONS- SUBTITLE A: REVENUE OFFSET PROVISIONS-(sec .
9001 , as modified by sec. 10901)
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 employees gross income."

Joan Pryde is the senior tax editor for the Kiplinger letters. Go to
Kiplingers and read about 13 tax changes that could affect you. Number 3 is what I just told you about.

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

[/EET]

FULL ANSWER

Here’s another one to add to the list of false claims about the new health care law.

It’s true that the value of employer-paid health insurance will be added as an information item on W-2 forms. But contrary to this widely circulating chain e-mail, it definitely will not be considered taxable income.

Readers who followed the 2008 presidential campaign may recall that it was Republican candidate John McCain who proposed to make the value of employer-sponsored health insurance taxable. Democrats hated that idea; Barack Obama ran an ad claiming, falsely, that it would be the "largest middle-class tax increase in history."

So it is ironic that some of President Obama’s critics now claim that the bill he signed would do what his opponent proposed and he denounced. Ironic, but false.

The e-mail’s author correctly quotes a Congressional Research Service summary of the bill that became law (H.R. 3590), noting that 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 author then goes on to conclude — quite incorrectly — that this amount will be "added to your gross pay" and that "[y]ou will be taxed on the total." The CRS did not say that, and neither does the legislation itself. In fact, the value will continue to be untaxed, just as in the past.

The e-mail’s author also claims that an article written by Joan Pryde, a senior editor of the Kiplinger letters, backs up the claim: "Go to Kiplingers and read about 13 tax changes that could affect you. Number 3 is what I just told you about." But the truth is that the Kiplinger letters actually contradicts the claim.

Pryde’s article is dated April 5 and is headlined "Health Care Reform: Tax Hikes on the Way — Here are 13 changes in the massive overhaul that could impact your tax bill, for better or worse." Among them:

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.

The author of this false e-mail seems to have missed the second sentence in that paragraph — the part that says the amount "is not considered taxable income."

–Brooks Jackson

Sources

Pryde, Joan. "Health Care Reform: Tax Hikes on the Way." Kiplinger letters. 5 Apr 2010.

United States. Cong. Senate. 111th Congress, 2 nd Session. H.R. 3590, "The Patient Protection and Affordable Care Act." (Enrolled as Agreed to or Passed by Both House and Senate). accessed 26 May 2010.