TAX NEWS - June 2010

You likely won't have to pay 'Cadillac plan' tax

The Claim

Among the things I despise are forwarded e-mails that no one has bothered to check out.

You know the ones I'm talking about. They make random claims about President Barack Obama or Sarah Palin. Typically they have no source and have been forwarded so many times that it is almost impossible to figure out where the e-mail originated.

This week's claim comes from one of those e-mails:

"Starting in 2011 (next year folks) your W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are given by the company. It does not matter if that's a private concern or a Governmental body of some sort. If you're retired? So what: Your gross WILL go up by the amount of insurance you get. You will be required to pay taxes on a large sum of money that you have never seen. Take your tax form you just finished and see what $15,000 or $20,000 additional gross does to your tax debt. That's what you'll pay next year."


Background

It all comes back to the health care bill Obama signed into law March 23.

At the heart of the e-mail are something called " Cadillac plans." For most employer-based health insurance, your employer pays a big chunk of the premium and you pick up the extra. But you don't pay taxes on what your employer paid for your insurance and it isn't part of your income.

The health care bill does tax those cream of the crop plans (and no, they're not all union plans, but some union plans across the country were part of the ongoing debate on this topic). But, it doesn't start until 2013 (unlike the e-mail said). And, the New York Times estimated that more than 90 percent of all family plans will fall below the threshold the value must hit to be taxed.

From what I read in different media accounts, discrepancies seem to exist on the limits. But, most accounts (and from what I could tell of the bill's actual language) agree that an excise tax of 40 percent would be imposed on employer-sponsored health insurance plans that exceed in value $23,000 annually for a family.

Insurance companies would pay the tax. While many point out that the employee isn't paying the tax, others also point out that the insurance companies likely will pass on the tax through higher deductible, etc. I doubt they'll just generously pay the new tax without finding a way to pass the cost onto consumers.

According to the New York Times, the current average family health insurance plan is worth $13,400 and less than 10 percent of plans are expected to be above the excise-tax threshold in 2013.

Among the sources I consulted were the New York Times, The Washington Post, Foxnews.com, Snopes.com (a website that proves or debunks e-mails and claims), factcheck.org, Politifact.com and the actual language of the bill which can be found in Title IX, Sec. 9001 of the Patient Protection and Affordable Care Act.

One thing about these types of e-mails that needs to be addressed: They make the rounds when political season is in full swing.

And, after last week's primary, well, we're in full swing until the Nov. 2 election. I have no doubt that health care (facts and myths) will be front and center in the race between Democratic U.S. Senate Majority Leader Harry Reid and Republican candidate former Assemblywoman Sharron Angle. Because of the politics involved, factcheck.org, which is a project of the Annenberg School of Public Policy that also fact checks claims, says this:

"Readers who followed the 2008 presidential campaign may recall that it was Republican candidate John McCain who proposed to make the value of employer-sponsored health insurance taxable. Democrats hated that idea; Barack Obama ran an ad claiming, falsely, that it would be the 'largest middle-class tax increase in history,'" according to the group's website.


Verdict

From everything I read, the short answer is this: No, this isn't true. It is true that you will start getting the value of your health insurance plan on your W-2 forms -- just not as income. I give this a 2 on the truthmeter.