Thursday, August 04, 2005

Rumor: Health Bennies to be Taxed

If you didn't know what your health insurance is worth, the IRS may help you understand:

For 60 years, American workers have received job-sponsored health-care benefits that are excluded from income and payroll taxes, but now they're in danger of taxation.

An odd coalition of groups from both the right and left wants to tax those benefits, and a special presidential commission is weighing whether to recommend ending their tax exemption when issuing its report Sept. 30 on how to overhaul the tax system.

...Left-leaning advocates call for ending the tax exclusion for job-sponsored health benefits in the name of fairness. They think the benefits are an invisible tax break for wealthier Americans that's unavailable to poorer ones, who generally don't get job-based health insurance.

...The Heritage Foundation, a conservative policy-research center, says the exclusion leaves consumers in the dark about the real costs of health care, leading them to make uninformed decisions that ripple through the health-care economy, driving up costs.

...Advocates on left and right agree on this: Ending the tax exclusion should be accompanied by a new national tax-credit system for health care.

Tax credits would exempt health plans from taxation up to a set dollar limit. Employers would put price tags on the benefits they provide to employees — many already do this to remind workers why wages aren't rising — and anything above the government-set limit would be treated as taxable income. This would allow the taxation of so-called Cadillac health plans, the generous ones that cover everything from fancy eyeglasses to hair transplants.

...Earlier this year, the Congressional Budget Office, the legislature's analytical arm, estimated that eliminating the tax exclusion for employers and employees for health-care benefits could raise $195 billion by 2010, and $705 billion through 2015.

(Original story in Jewish World Review)

Here's some math: in SE Wisconsin, the typical family health plan costs around $1,000./month. Assuming that the covered family contributes $250./month, that means that the "income" imputed is around $750./month, or $9,000./year. At 28% or so, that works out to $250+/month in additional Federal Income tax payable.

And you can bet serious money (do it now, before it's unavailable to you) that the State of Wisconsin will find a way to piggyback onto the tax-wagon.

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