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HR 3590 - Income Tax on Employer-Provided Health Insurance?

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Forwarded email claims HR 3590 (the 'Obamacare' bill) will require employees to pay additional income tax based on the value of employer-provided health insurance listed on W-2 forms.

Description: Viral text
Circulating since: April 2010
Status: False (see details below)


Example:
Email contributed by Ann N., July 6, 2010:

Fw: 2011 W-2 Tax Forms - Nice Surprise - NOT FUNNY

2011 W-2 Tax Forms and Obamacare

Should you want to verify this, go to http://www.thomas.gov/, enter "HR 3590" in the search box and look for "CRS Summaries." This is what you'll find.

Title IX Revenue Provisions - Subtitle A: Revenue Offset

"(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)."

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 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. But also adjust your tax withholding, or increase your savings, so that you aren't surprised and put in a jam when your federal income taxes are due on April 15, 2012.

Think before you vote!




Analysis: False and misleading. While the Patient Protection and Affordable Care Act (H.R. 3590) does require employers to include the aggregate cost of applicable employer-sponsored group health coverage on employees' W-2 tax forms beginning in 2011 (see text of bill, page 735), it does not require employees to pay income tax on that amount. Note that the quoted excerpt from the Congressional Research Service summary of the bill describes the cost as "excludable from the employee's gross income."

Interestingly enough, the Kiplinger article referenced in the message reaches the same conclusion — "The amount reported is not considered taxable income" — though for some odd reason that isn't mentioned in the email.

However, as the Kiplinger article further points out, the Patient Protection and Affordable Care Act contains other changes to the federal tax code that will result in some people's taxes increasing over the next few years. I recommend reading it for a concise, accurate overview of how health care reform will (and won't) impact your personal taxes: "Health Care Reform: 13 Tax Changes on the Way."

According to a report by PolitiFact.com, the real reason employers will now be required to list the cost of group insurance on employees' tax forms is that beginning in 2014 it will be the IRS's job to verify whether individuals and their dependents have health care coverage as mandated by the legislation. Again, you will not pay personal income tax on that amount.


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Sources and further reading:

H.R. 3590 - CRS Summary
Congressional Research Summary via Thomas.loc.gov

Health Care Reform: 13 Tax Changes on the Way
Kiplinger, 5 April 2010

2011 W-2 Tax Forms and HR 3590: No, You Won't Have to Pay Taxes for Health Insurance
PolitiFact.com, 10 June 2010


Last updated 07/12/10

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