Income Taxes: Your Health Benefits Might be Next

Posted in Health Insurance

June 29th, 2009

It looks like Congress is thinking about adding health benefits to the list of items that can be hit by income taxes. This comes in the wake of lawmakers trying to find ways to finance the oft labeled “ambitious” health care agenda to span the next 10 years.

There have been pretty strong debates over the past few months as to what needs to be done with the health care system. It’s evident that the nation as a whole is vastly underinsured, but no one can seem to come to an agreement about how to fix it.

One suggestion fromCongress’ nonpartisan Joint Committee onTaxationis taxing payroll health benefits. By taking this route, it is said that the more than $226 billion that the U.S. Treasury missed out on last year can be recovered the year the taxation is applied.

President Obama is not completely onboard with the plan; however, he is said to be willing to consider some policy options. Here are three on the table:

• Cap the tax break. This idea falls in line with taxing health benefits. But instead of taxing any benefit dollar amount, the tax would only apply to a portion of the benefits. The trick with this policy, however, is that insurance premiums are not uniform, so it would be difficult to tax proportionate amounts for all workers.
• Tax the rich.Another option would be to tax only those in a higher-paying bracket. The problem with this policy is that it wouldn’t bring in nearly as much money as the first option.
• Eliminate the tax break. The third option is to eliminate the tax break for health benefits and instead offer a tax credit or deduction.

Someare toying with the idea of not changing anything at all because it will likely increase the number of uninsured individuals and likely result in higher deductibles. However, it’s hard to say what exactly will be able to save the health care system. But one thing is for sure, something has to change sooner rather than later.

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