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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Member's Profile

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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Member's Profile

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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Member's Profile

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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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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