Taxing Health Care Benefits
Emails are circulating about fears related to new taxes on health benefits. Here are some facts that should allay at least some of your concerns:
There will be no tax on health benefits until 2018 (and we think it will be repealed before then).
Starting next year, your employer will have to include the value of your health plan on your W-2, but until 2018, it’s just for informational purposes – there will be no taxes on it.
In 2018, insurers must pay a 40% tax on the part of “Cadillac” benefit plans that exceeds $10,200 for individuals or $27,500 for families (not including stand-alone vision or dental benefits). If you have a tax-favored health savings accounts or flex spending account, they will be included in the limit.
By way of example, if your insurance premiums for the year are $2500 per month for your family, your insurer will have to pay 40% of $2,500, or $1000 per year. Of course, that can be avoided if your employer reduces the plan so that it costs less than $2291 per month.
There are some exceptions. The 40% tax will not apply until higher limits for high-risk employees, such as firefighters and pilots. Also, retirees 55 and older get a break as well because their insurance tends to be more expensive. For them, the tax will apply to the value of benefits above $11,850 for individual coverage or $30,950 for a family plan.
You can expect a couple things to happen here. Insurers will pass on the extra taxes in the form of higher premiums. Also, employers will cut down the so-called Cadillac plans so that the premiums fall below the level described above.
We are talking about the most expensive plans, though, folks. The average policy for an individual cost $4,824 per year for single coverage and $13,375 for family coverage in 2009, according to the Kaiser Family Foundation.
The bottom line is that Congress has yet-again succeeded in postponing the day of reckoning. There is plenty of time to change or repeal this law. Even if that doesn’t happen, the likelihood of the change in taxes affecting you is pretty slim.