Obama Care W2 Stealth Tax Increase

by Ryan on July 8, 2010

in Economy,Health Care,Law,Politics

I get millions of sky-is-falling Obama-is-evil email forwards, but one of them I received yesterday actually linked to a source (you’re all thinking “wow, that’s odd”)!  The forward was regarding changes to our 2011 W2 tax form that was included in HR 3590, aka Obama Care, now Public Law 111-148.  The forward directs you to the Library of Congress, where you can search for HR 3590 as a bill number, and click on Congressional Research Service (CRS) Summary before going to Title IX: Revenue Provisions Subtitle A: Revenue Offset Provisions, Sec. 9002, which reads that the new IRS change:

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).

So, if I make $50,000 a year, but my employer contributed a net of $10,000 to my health care, suddenly my W2 form in 2011 will say that I in fact made $60,000 for that year and will be taxed at that higher rate for money I didn’t even earn!  Funny, I never heard the Dems talking about this stealth tax increase!  It’s stealth because while technically not directly raising your taxes, it does potentially push you up to a different tax bracket, where you’d end up paying more taxes.  Sneaky.

The only potential fallacy here is that the Library of Congress does not yet have a text or PDF version of Obama Care (surprise surprise), so this part could have been stricken from the final act.  Not likely, though, since it tempts employers toward adopting a public option.  However, as of this moment, HR 3590 and PL 111-148 are exactly the same in the Library of Congress.

I sure am glad Congress made sure they knew all the ins-and-outs of the bill before passing it… right?  Can’t wait for November.

{ 3 comments… read them below or add one }

Neil July 9, 2010 at 11:54 am

Read the exerpt that you have included – the W-2 will show the cost of medical insurance coverage that is “excludable from the employee’s gross income”. What it is saying is that for information purposes, your medical insurance costs will be shown on your W-2, just as it does for 401k contributions. This doesn’t change your taxable income at all.


Ryan July 10, 2010 at 10:33 am


My read was that the total contributions by the employer will be listed, meaning that if I pay 10% into my health care, my employer lists not just the 90% they paid but the aggregate figure, but the word “excludable” could infer just listing the net difference. I guess I needed to put the proper emphasis on the right part of the sentence or get out my legalese translator since this excerpt was misleading to me — why couldn’t your health coverage still be listed in a place on the W2 which implies taxable income? My head spins a little.

I’m not an accountant, nor do I work in the private sector so I don’t have a 401k, but a wimpy 403b, which is not listed on my W2 form — this added health care figure would be more of a shock for me. But, thanks for the clarification — I certainly hope your interpretation is the correct one!


Chris July 3, 2012 at 8:02 pm

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