Are Employer Paid Health Benefits Taxable 2014?

Christie Jahn's Profile

Are Employer Paid Health Benefits Taxable 2014?In Jan 2014, as a result of Obama Care; employer paid health benefits will be taxable as a fringe benefit. I'm looking at it from the perspective of increased tax brackets possibly? Taxing people for something that is currently a benefit? I'm curious what your thoughts are about this?

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Christie,

On the question of are employer paid health benefits taxable income, could you provide a link or some more information on where you read this? I can't find anything indicating that employer paid health benefits were going to lose their pre-tax status.

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Christie makes a great point.... are employer paid health benefits taxable?

Here's a great free resource here on Proformative:

"Affordable Care Act Tax Provisions"

http://www.proformative.com/resources/affordable-care-act-tax-provisions

Proformative also offers an online course titled,

"How Might Tax Reform Affect My Company?"

And, here is a video introduction. to this Academy course.

Enjoy!

Best... Sarah

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At this point, there is no law on the books that makes employer provided health insurance taxable in 2014 - unless you are "driving" a Cadillac plan. But it would not surprise me if one day our Government decides to tax this benefit. It seems to me that the requirement to report its value on W-2's is the first step in that process.

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I agree. Getting employers to put this amount on the W-2 isn't to show the employees what their employer pays for their health insurance. It is to eventually make the benefit taxable.

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Yep.

I'd retire today if it weren't for the cost of my and my spouse's health care. Well more than $20,000/year right now. Despite the promises of the ACA.

I have this vision of retiring and seeking PT work with no salary. Only health care benefits. ;-)

I've considered making a signboard that reads: "Will work for healthcare benefits."

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I heard it at meeting I was at; people discussing the changes in Obama Care and how it will impact companies. I mentioned that we fully pay for our employee's healthcare so I wasn't that worried about how it will impact us as a company and they (these being HR / Accounting Folks) mentioned that we have to report the value on the W2's and our employee's will have to show it as income on their 2014 taxes. Looking for more information to back this up; I asked our Insurance Agent who said that is what he understands as well. I will ask him to send me some literature which I will share if I can.

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I also heard that employer provided health benefits would be taxed but fortunately I knew enough to question my "source". My understanding is the same as Robert's above. I don't know if the taxation rumor was an innocent misunderstanding of the fact that W-2 reporting does not necessarily equal taxation or if it was a calculated misrepresentation by the opposition (of which I am one but certainly both sides like to spin). I will point out though that 401K contributions have been reported on W-2s for years and those earnings are not (yet) taxed.

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Christie-
It is my understanding that in 2018 high cost health plans are subject to a 40% excise tax. This is referred to a tax on Cadillac plans. High cost health plans are defined as above 10,200 for single coverage and 27,500 for family coverage.

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The "Cadillac" tax on employers is indeed scheduled for 2018. Two taxes/fees do start in 2014; a tax on insurance premiums charged by insurance companies - sure to be passed on - and a fee of $63 per employee insured, including insured under self insured administrative arrangements.

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At a networking breakfast yesterday, our speaker on healthcare indicated that the main reason, for now, is to track what these costs are so the Feds can determine if the "Cadillac" threshold is accurate or not. It's all about raising tax revenues. If the threshold is too high, then tax revenues will be too low. The political hot potato around this, per our speaker, is that many union benefit plans could fall foul of the "Cadillac" rule if the threshold is too low.

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I have asked my agent for a resource so if he provides me something I will share, but it sounds like it could be rumor. We don't even have to report these benefits unless we have more than 250 employee's in 2014 so it actually makes more sense that it's a monitoring piece. Thanks for the feedback!

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There has been ongoing discussion of taxing employer provided fringe benefits, just as life insurance premiums on > 50k on insurance is now taxed. However, I have been unable to find any mention of this in articles on obamacare, as mentioned in some of the comments above. That is very good news, since the way things seem to be going, some of us are liable to come home with a negative paycheck due to taxes on benefits (which include things like vacation time).

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I have my answer: For now it will be for reporting purposes only for now..
2013. Here are the implementations we have to comply with for now:

This is an important year for joint filers with incomes over $250,000 and single filers with incomes over $200,000. These taxpayers will now be subject to two taxes:

· Medicare tax on earned income: The tax will increase from 1.45% to 2.35%, but only on income beyond the $200,000/$250,000 thresholds.

· Medicare tax on investment income: This new 3.8% tax will be assessed on interest, dividends, capital gains, rent and royalty income. Investment income from retirement accounts is not subject to the tax.

Taxpayers at any income level could be subject to these changes:

· Cap on flexible spending account (FSA) contributions: Previously, employers could set the limit on contributions to FSAs. Many opted for caps as high as $5,000. In 2013, a cap of $2,500 goes into effect. Anything above the cap becomes part of your taxable income. The cap will rise each year as the cost-of-living increases.

· New limits on medical deductions: Current law allows filers who itemize their deductions to deduct out-of-pocket medical expenses that exceed 7.5% of their income. In 2013, expenses must exceed 10% for filers under age 65. (If you’re over 65, the law goes into effect in 2016.)

2014

The year 2014 is a watershed for the healthcare reform law. This is when the major changes to your healthcare plan will begin. At this time, all Americans will be required to maintain health insurance. (Exceptions include Native Americans, prisoners and illegal immigrants.)

If you are not covered by an employer plan, or by Medicare or Medicaid, you’ll have to purchase your own coverage from a market exchange.

The IRS is responsible for monitoring whether people comply with the new laws. They’ll do this by requiring you to report the value of your health plan on your tax return. If you don’t have coverage, a penalty will be assessed.

Here are the details:

· Something new on Form W-2: Starting in 2014, you’ll see a new number on your W-2 form. This is how employers will report the value of your health plan to the IRS. This key figure will determine whether you’re eligible for tax credits or liable for tax penalties.

· Health plans are not income: Even though the value of your plan is reported on your W-2, it’s not taxable. So you don’t need to report it as income on your tax return.

· Penalties for those without medical coverage: The penalty starts at $95 or 1% of income (whichever is greater) per person in 2014. It gradually rises until it hits 2.5% or $695 (whichever is greater) per person by 2016.

· Tax credits for low-income filers: If you can’t afford health insurance, you may be eligible for tax credits to help you pay the cost of coverage if you earn between 133% and 400% of the federal poverty level. Based on the current poverty level of $10,830 per year for singles and $22,050 per year for a family of four, assistance would be available for singles with income between $14,404 and $43,320 and families with income between $29,327 and $88,200.

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My employer pays differing percentages of its employees health insurance premiums. This percentage can be anywhere from 0% to 100%. Every employee negotiated their own insurance deals at the time of hiring. When we got our 2014 W-2 this week we were informed that the people that have their entire health insurance premium paid by the company (100%) that 50% of that amount would be added to our wages on the W-2 and indeed we did get that amount on a corrected W-2. They say this is because the majority of employees only have 50% of their premium paid for by the employer and under the new affordable healthcare act they are not allowed to pay different amounts for their employees.

I am one of the employees that the employer pays 100% of my premium and this added over $2,200 to my total wages on the W-2 which makes it taxable income. I believe this is wrong if not downright illegal. My contention is that they should have put the total contributions in box 12 on the W-2 coded DD. They chose to leave nothing on the W-2 in box 12 coded DD. Does this sound correct on my employers part?

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Joe,

How many employees do you have? I am not sure if the rules change depending on # of employees, but reportable heathcare to my knowledge is reported in box 12 coded as DD. The definition of that code is Cost of employer-sponsored health coverage. I would ask your HR team some questions to satisfy your concern.

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My husband and I both work at same place and they have been paying out premiums. We get $500 per month for each of us. We just got our w2s and a crappy letter on break room cabinet. That our premiums we counted as taxable income. So we have an extra $12,000 in income to account for. Not only did we get a tax credit from the crappy obamacare but now we are in a higher income bracket and we have to pay the credit back. There has to be a way around this. We didn't receive the money. The paid the premiums to insurance company. I wishsomeone could offer some input as to how to deal with this.

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I am confused with the wording on your comment. You say you "get $500 per month for each of us". Are they adding $500 to your pay check each month? For what purpose? Do you buy your insurance outside of your company? But then you said you didn't receive the money. I am confused.

You should go to your payroll department and have them explain it to you. Or go talk to your tax preparer. Asking this type of question on a forum like this is probably not the best place to get an answer.

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My guess is, those are employer provided HSA contributions. And, because you both work at the same place, there is a duplication of coverages such that the entire amount is not tax free. We have that issue at my current employer.

And, they wonder why I am demanding a non-fraternization policy. :-0

All the marriages and divorces amongst employees around here have been nothing but headaches for my HR and payroll departments to say nothing of the drama we've had to endure.

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Re: Joe Cannon comment --Sounds like your company has a non qualified health care plan so this may be true. When a company provides additional benefits for a highly paid person or group (excluding collective bargained groups) that benefit is typically taxable. If this is the case it has nothing to do with Obamacare and has been the tax law for years.

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Scott McDonald, sorry for not being clear. My husband and I work at same place. We get $500 allowance per month for insurance. If we were to go over we would pay the difference but we don't. We have individual policies but the bill comes to company address and they would mail payment. It was not a reimbursement type of thing.They just pay
the bill straight to insurance company. I have asked payroll for a breakdown and even told them it shouldn't be included in our wages/salary (box 1 of w2) and should be on line 12 with code dd. I don't think they really know what they are doing. Prior
years they didn't add to w2. So my last pay stub said $44,000 ytd but my w2 said 50,000. They added the insurance premiums. So with me and husband they added $12k that we had not planned. He refuses to change w2 and won't talk about it so I don't know what to do. Please Help!!

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I went to IRS office today and explained my situation. After searching through publications they couldn't tell me what to do. Everything we read said it should be reported on line 12 and non taxable. But could not give me any instructions. So the paychex office happened to be next door to irs office and went in to ask why my final check stub said 44,000 and my w2 said 50,000. I told her the irs thought it should not be taxable income but she said the laws changed and their w2 was correct. How do they know the laws better than the irs? Paychex does the accounting for my employer and couldn't tell me much cause naturally they direct me to my employer who knows nothing and will not do anything. My option is to wait until next week to file a form with irs so they can contact my employer to correct the w2. Or go ahead and file and subtract the benefits myself and wait on them to contact me. I really don't want to do it this way though. On the other hand employer keeps threatening if we don't stop bothering him he will just cut the benefit all together. Geez. I am thankful for the benefit. I just think they made a mistake on reporting it in my taxable wages.

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This thread especially Cindy's and Joe's comments reiterate the need for finance executives to have better communication skills and most importantly TRANSPARENCY.

I can't fully comment on Cindy's case but it is clear that her having this idea that the company is providing her an "allowance" for her premium (and should supposedly be grateful for it) is misinformed and then find out in the end that she is really paying for it. If she is paying for it, shouldn't she have the right to at least shop for her insurance? Why is it required (?) for the billing to go to the company address?

I don't want this to be an ideological debate on the ACA and certainly it has its faults but I will say this.....

If Finance executives want to put the blame on the ACA, then they should also be responsible in providing honest and transparent information to it's employees like the full effects of downloading the burden (full or partial) of health insurance premiums to it's employees from the employee's perspective and more importantly, it's financial effects to the company.

Again, this is NOT about the ACA but about Finance Executives' responsibility to give honest and transparent information to it's employees.

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