The health-care reform legislation that passed earlier this year was incredibly broad in scope, so it’s probably not surprising that there’s a good deal of confusion, and a number of false or misleading claims being circulated. Here’s the truth behind two of the claims that have gained the most traction lately.
Tax on Health Insurance
The claim: Beginning in 2011, you’ll be taxed on the value of your employer-provided health insurance.
There are several email campaigns making their way around right now claiming that, beginning in 2011, taxable income on Forms W-2 will be increased to reflect the value of employer-provided health insurance. A typical email warns: “You will be required to pay taxes on a large sum of money that you have never seen. Take your last tax form and see what $15,000 or $20,000 additional gross income does to your tax debt. That’s what you’ll pay next year. for many it also puts you into a new higher bracket so it’s even worse. This is how the government is going to buy insurance for the 15% who don’t have insurance and it’s only part of the tax increases.”
The facts: While it’s true that, beginning in 2011, the health-care reform legislation requires employers to begin reporting the cost of employer-provided health-care coverage on an employee’s Form W-2, the cost is included for informational purposes only, to show employees the value of their health-care benefits. The amount reported is not included in income, and will not affect your tax liability.
Sales Tax on Real Estate
The claim: Beginning in 2013, a new federal sales tax will apply to the sale of a home.
The claim is that, beginning in 2013, all real estate sales will be subject to a new 3.8% federal sales tax. The emails making this claim generally contain some variation of the following text: “Under the new health-care bill – did you know that all real estate transactions are now subject to a 3.8% sales tax? The bulk of these new taxes don’t kick in until 2013… if you sell your $400,000 home, there will be a $15,200 tax.”
The facts: This claim, though inaccurate, has a basis in fact. There is no federal sales tax being imposed on the sale of homes. But, beginning in 2013, the health-care reform legislation does impose a new 3.8% Medicare contribution tax on the net investment income of high-income taxpayers (individuals with adjusted gross income (AGI) exceeding $200,000, and married couples filing joint returns with AGI exceeding $250,000). Net investment income will include only gain on the sale of a home. However, the tax will not apply to any gain that is excludable from income. Individuals, if they qualify, can generally exclude the first $250,000 in gain on the sale of a principal residence, while married couples filing jointly can generally exclude up to $500,000. That means that in most cases, at least where a principal residence is concerned, the 3.8% tax would kick in only if your AGI exceeds the threshold above and only if profit on the sale of the home exceeds $250,000 ($500,000 for couples filing jointly).
These two claims are good examples of how things can get out of hand when the complete facts aren’t fully understood. The only way to completely understand what’s going on with the new law is to educate yourself – and to use trusted sources when educating yourself. It’s important to know that not all emails and internet articles are to be fully trusted. Know the source of the communication – and make sure that it’s someone you can trust to give you the complete picture. And if you want to get a second opinion on something you’ve read, just let me know. I’ll be happy to help out, as always.