President Obama’s plans for healthcare reform could have some nasty tax consequences for employees.
Congress is looking for ways to raise more than $1 trillion in new tax revenues to finance health care for the uninsured. At the top of the list: several proposals that would cut employees’ take-home pay 9% to 14%, depending on their household income and tax situation. Several of the plans under consideration would require Payroll to treat as taxable income:
- health insurance premiums
- dental premiums
- vision premiums
- flexible spending account deposits, and
- health reimbursement arrangement contributions.
Right now, employees don’t pay taxes on these benefits because they’re deducted from their paychecks on a pre-tax basis.
Specifically, the proposals the Employer Council on Flexible Compensation reports are under consideration include:
- capping this proposed group health tax exclusion at $6,800 for individuals and $17,240 for group coverage in 2013
- imposing the cap on all workers with group coverage, or
- imposing the cap only on those earning more than $100,000 per year (married couples, more than $200,000) per year.
For more info
To see how the proposals might affect your own paycheck, go to www.nohealthbenefitstax.com and click on “Worksheet: How the health tax impacts your paycheck” on the right-hand side of the screen.
You’ll enter data such as income and tax status; employer’s benefit contributions; and pre- and post-tax benefit contributions. The spreadsheet will show your take-home pay (as entered) as of today, then calculate how much it could decline under each of the proposals. Another chart shows the increase in employer FICA, based on the values entered.