Wow, that is a lot of money!
How much does your health care cost, how much does your employer pay for your coverage? The chances are you do not know the answer to either question. You may not even know what you are paying through payroll deduction.
The government wants to educate you on those matters and that is the reason why the value of your health benefits will appear on your 2011 W-2. The requirement to put this information on the W-2 originated in the Senate Finance Committee version of reform.
The purpose of the provision is to provide employees with greater awareness of the costs of health care, presumably on the premise that an informed consumer might engage in conversations with the company to find less costly options. ..as if any employer needs encouragement to find a less costly option. Whether one agrees with that or not, that was the intent, to provide employees with more information on the cost of their health care. Some employer organizations argued that if that really is the only reason for it, then employers (mostly large employers) that already provide that info on an annual total comp statement for employees should not also be required to do so on the W-2. That argument was ignored.
How will the health value amount on your W-2 be calculated? It will reflect the value of the coverage you have based on the COBRA premium for that coverage. Therefore, if you have a plan that would cost you $1,000 a month if you lost your job and continued benefits under COBRA, then $12,000 will appear on your W-2 at the end of 2011. The 2% administrative cost added to COBRA premiums is not included in the value reported.
Adding this information to the W-2 will mean a great deal of effort on the part of employers and considerable administrative expense as well. If you think about it, coverage does not stay the same for an entire year, employees are hired, terminate employment, add children, get married, get divorced, etc. In addition, many employers offer one or more alternative plan to choose from each with a different value.
Some people believe there are secondary reasons such as data collection, tracking medical inflation, and better determining the revenue loss due to the tax-free status of these benefits.
Regardless of the reasons, one thing is clear the value of health benefits placed on the W-2 is not added to gross income and is not taxable.
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