Taxable Wages: The Total Package

Taxable Wages: The Total Package

Currently, U.S. employees are lured to jobs and careers with not only wages, but also the benefits or incentives a company could offer the employee. Those benefits are currently not considered taxable income to the employee and, therefore, generally not reported on a W-2 form.

Section 9002, titled, “Inclusion of Cost of Employer-Sponsored Health Coverage on W-2”, is summarized by THOMAS.gov:

Title IX Revenue Provision Subtitle A: Revenue Offset "(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee's gross income (excluding the value of contributions to flexible spending arrangements)."

Beginning January 1, 2011, U.S. employers will be required to report what they paid toward an employee’s health benefit plan on your W-2 form in box 12. This amount does not include what the employee pays into the plan; just what the employer pays as a benefit to the employee. Further, it is not being reported in the box marked for taxable income....yet.

How much do you trust that Congress will not pass an amendment to the IRS Code of 1986 to start adding the boxes together and increase your tax liability? Should that happen, every employee at every company will begin evaluating their total compensation package. Thus, small companies would struggle to keep or attract qualified employees. A small company generally pays a higher premium, which would cause a higher income tax liability. A large company, having more employees on a group plan, would have the advantage of a reduced premium and lower tax liability. Regardless of which size company you choose to be gainfully employed, it is a potential danger to all employees for increased taxable pay without increasing the take home pay.