Taxable Health Insurance Benefits

There is some false information going around online, in the form of chain e-mails, about the new health insurance bill that became law earlier this year. It is a shame that more people don’t take the time to get to the source before forwarding such false information.

Below is a copy of the e-mail I sent to my friends setting the record straight about the bill’s provisions. Following my response is the original e-mail text to which I responded. I hope this will help keep panic about the new provisions to a minimum.

Dear Friend (I’m not listing my friend’s name to avoid embarrassment),

I thought you should know: I read this bill (almost in its entirety) and the e-mail below takes the provisions out of context. Though I do not support this bill and believe it is unconstitutional, the bill does not make all employer-paid health insurance premiums taxable to employees.

Here is the preceding paragraph to the one mentioned in the below e-mail:

Title IX: Revenue Provisions – Subtitle A: Revenue Offset Provisions – (Sec. 9001, as modified by section 10901) Amends the Internal Revenue Code to impose an excise tax of 40% of the excess benefit from certain high cost employer-sponsored health coverage. Deems any amount which exceeds payment of $8,500 for an employee self-only coverage plan and $23,000 for employees with other than self-only coverage (family plans) as an excess benefit. Increases such amounts for certain retirees and employees who are engaged in high-risk professions (e.g., law enforcement officers, emergency medical first responders, or longshore workers). Imposes a penalty on employers and coverage providers for failure to calculate the proper amount of an excess benefit.

(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee’s gross income (excluding the value of contributions to flexible spending arrangements).

It is clear, from reading the entire revenue provisions section, that the only time an employer-paid health insurance premium will be added to an employee’s taxable income is when the premium paid by the employer is more than $8,500 (for a single-only plan) or more than $23,000 (for a non-single, or family plan).  At that point, 40% of the overage will be added as an excise tax to the employee. So, essentially, the government will tax the “excess benefit” at a rate of 40% instead of the employee’s normal taxable income rate.  My understanding is that this provision will mostly affect high income employees who receive fantastic employment benefits. It is unlikely to affect the majority of Americans.

Section 9002 (the section mentioned in the e-mail below) merely requires that the amount of the benefit be LISTED on the W-2. It does NOT specify that the amount be listed as taxable income on the W-2. The benefit amount of the health insurance premiums must be included on the W-2  so that it will be clear which employees received benefits that must be taxable – and so those employees can claim those funds when they file their taxes. If the health insurance premium amounts paid by the employer were NOT on the W-2, then employees wouldn’t know (absent other documentation provided by the employer) if their employer paid more than the $8,500 or $23,000 and whether they owed taxes on those premiums as provided in Section 9001.

It is disappointing to see e-mails going around that distort the facts, either purposefully or out of misunderstanding. This is why it is important for everyone to go to the source and read it for themselves when they receive an e-mail (or reads an article) like this . I know it is hard to do – we are all busy and it takes time to do our research. But, we will serve our country and community better when we understand these topics and can engage in intelligent and knowledgeable debate.

Please forward this information so that our friends and community is not led astray and put in a panic because of false information about the new health insurance provisions. If someone is concerned about whether their employer is paying more than $8,500 or $23,000 per year (depending on their plan), then they should talk to their HR Manager before planning to adjust their payroll withholdings.

Rachel Hiser



Date: Monday, July 5, 2010, 1:21 AM

For your information.
You taxable income is really going up–you will pay on money employer pays out for your health insurance.

Something to think about. Good one to distribute widely, IMO. People need to know all of these details of what the big “O” hath wrought. Make your own judgments based on your values, the ONLY reason I’m sending this is to warn you to analyze your financial situation and adjust your withholding accordingly.

Should you want to verify this, go to, enter “HR 3590” in the search box and look for “CRS Summaries.”  This is what you’ll find. Title IX Revenue Provisions—Subtitle A:  Revenue Offset
“(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee’s gross income (excluding the value of contributions to flexible spending arrangements).”

Starting in 2011—next year—the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided.  It doesn’t matter if you’re retired.  Your gross income WILL go up by the amount of insurance your employer paid for.  So you’ll be required to pay taxes on a larger sum of money that you actually received.  Take the tax form you just finished for 2009 and see what $15,000.00 or $20,000.00 additional gross income does to your tax debt.  That’s what you’ll pay next year.  For many it puts you into a much higher bracket.  This is how the government is going to buy insurance for fifteen (15) percent that don’t have insurance and it’s only part of the tax increases, but it’s not really a “tax increase” as such, it a redefinition of your taxable income.

Also, go to Kiplinger’s and read about the thirteen (13) tax changes for 2010 that could affect you.

Why am I sending you this?  The same reason I hope you forward this to every single person in your address book.  People have the right to know the truth because an election is coming in November.  So vote intelligently, based on your values.  But also adjust your tax withholding, or increase your savings, so that you aren’t surprised and put in a jam when your federal income taxes are due on April 15, 2012. Fight organized crime!  Re-elect no one.


Please help me fight ignorance and misunderstanding by sharing this information with your friends and family.


Rachel Hiser

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