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Don't fall for health care tax rumors

A message is showing up in e-mail boxes alerting folks that the recently-enacted health care reform law means they'll soon be paying income tax on the value of the health insurance they get through their jobs.

Saving-money-on-medical-expensesOne big problem, though. The e-mail is wrong.

I haven't personally seen the e-mail. Either I'm not part of the sender's target audience (hallelujah!) or my spam filter works a lot better than I realized (although you couldn't prove it by the other junk I do get).

But Michael Rozbruch, who blogs at Tax Resolution University, got the false warning and he reprinted it in full.

As is usually the case with these types of calculated messages, this health care one artfully incorporates some truth in its otherwise inflammatory text.

Here's the most egregiously fiery, and pants-on-fire wrong, language:

Starting in 2011 (next year folks) your W2 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 company or government body of some sort. If you're retired…. So what, your gross will go up by the amount of insurance you get.

The dollar value (cost of what the company pays for your insurance) will be considered income and added to your gross pay.

You will be taxed on the total. You will be required to pay taxes on a larger sum of money that you have never seen.

The partially true portion is, yes, your 2011 Form W-2 that you'll get in 2012 will show the value of your workplace-provided medical insurance. This is the big chunk that your company pays, while you and your coworkers pay the remaining, smaller portions for your coverage.

Your company's portion of your insurance is now a nontaxable fringe benefit to you, the employee. Under the new health care law it will continue to be just that: nontaxable to you, meaning that the IRS doesn't get a cent from you on the coverage's value.

But Uncle Sam wants to know about the insurance costs that businesses pick up for all their employees. And the easiest way to do that is via a reporting mechanism, the annual W-2s employers send out, already in place.

Plus, your boss probably won't mind you knowing this figure. That will save him or her time when you ask for a raise and he or she does the song and dance about how much you're already getting via things like your employer-provided health insurance.

Why does the IRS care about the value of your company-provided medical coverage if you don't (and won't) owe any taxes on it?

Because another part of the health care reform law is the so-called Cadillac tax on higher-dollar health care benefits that some employees receive. The IRS wants info on those amounts because in 2018 a tax will be imposed on such benefits.

The Cadillac tax, however, will be due from the insurance company. Not from your employer. Not from you.

So if you get the "Yikes! The health care reform law is going to cost you more taxes!" e-mail, don't panic. Just delete it.

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Jimmy Gee

This sounds like Big Brother is watching us.

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