No, Health Benefits Won't Be Taxed

We try not to pay attention to the unsubstantiated rumors that so often go viral on the Internet, but we were forced to take notice of one that clearly mischaracterized a story we wrote. We have been besieged with comments and e-mails, some complaining about what the writers said we said, others more wisely asking what the real story is.

Here are the facts: The new health law requires that employers start reporting the value of the health benefits you get on your W-2 form for 2011 (the one you’ll receive in January 2012). But the benefits will not be added to your taxable income, so you’ll pay no additional tax. The requirement is a hassle and expense for employers, but its aim, according to sponsors, is to help. The idea is that if workers know how much their employers actually pay for health benefits, they’ll work harder to keep costs down and be more understanding when pay raises are modest.

The e-mail campaign cited a story we did several weeks ago that clearly explained all this, but the rapidly circulating chain e-mail reported we said exactly the opposite: That the benefits would be taxed. FactCheck.org debunked the claim, citing the text of the law and official regulations. There are plenty of other tax hikes in the bill, as our story explained, but a tax on benefits isn’t one of them.

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Some folks fear that even if the law doesn’t require taxing benefits now, it will eventually. To them, reporting the value of the benefit is just a first step that will lead inevitably to taxation.

Perhaps. Taxing benefits is certainly a possibility down the road. In fact, Sen. John McCain of Arizona proposed exactly that when he was the GOP presidential candidate in 2008.

But claiming that the tax is a done deal is simply false. For now, at least, that health benefit line you’ll see on your W-2 is strictly informational. (A tax on so-called Cadillac health care plans will likely be passed on to workers, but that's a separate issue and won't arrive until 2018.)