As all of your tax documents begin to pour into your mailbox and you get ready for tax season, it is a good time to take stock of the changes that recently happened with the fiscal cliff in 2013. It’s also really important to pay attention to other changes that may impact your financial future. I am not a believer that the Government will show you a card that they don’t plan to actually use at some point in the future. When you get your w-2’s from your employer in 2012, pay close attention this year to a brand new number that will appear on the w-2 which is the cost of the employer paid component for your family health insurance.
The w-2 your employer sends you is typically pretty straightforward. It shows your gross wages, taxable income, federal income taxes paid, state income taxes paid, and your social security/Medicare tax paid during the course of the year. This year’s w-2 will have a new number that appears in BOX 12 after the symbol DD. The number will show the combined payments made by both the employer and employee if you have an employer sponsored health insurance plan through work. It won’t take into consideration things like Health Savings Accounts or Flexible Spending Accounts within the box.
If you work for a company with less than 250 w-2’s, they are not required to comply with the reporting so you won’t see this number. If you work for a larger more well established company, you will see the amount on your w-2. The real question is simply this, “Why in the world would the Government begin to report this number if they weren’t considering taxing it in the future?” Think about this for a minute. When your company pays for a percentage of your health insurance, the company is getting a tax deduction for this contribution. As the employee, you have never been responsible to pay tax on the benefit that you receive for health insurance. Wouldn’t it be a reasonable argument to say if the corporation gets a deduction for the line item that someone else on the other side needs to show this as constructive receipt of income if they get a benefit?
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. (source: www.wsj.com)
For a family health insurance plan, this potential new taxable income could exceed more than $10,000 per year. With both tax rate increases and phase outs of deductions happening at the same time, this could add even more taxation to those at the upper end of the income scale. While the IRS says that this is just to show employees the value of their health care plan, my guess is those at the $250,000 income level married ($200,000 single) could see another tax increase from having to include this as income in the not so distant future.
Let’s hope this new w-2 box that we all see this year doesn’t become contagious!
CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Editor in Chief of Your Smart Money Moves
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Find us on Facebook here – CLICK CLICK