In his State of the Union address to the nation last week, President Bush outlined a new plan to expand health care coverage for Americans. The plan would create a standard health insurance tax deduction, which would also act as a cap on the amount of employer-provided healthcare benefits that are tax-exempt.
Under the President’s proposal, employer-provided healthcare insurance would be treated as taxable income. However, there would be a new standard tax deduction for healthcare insurance of $15,000 for family policies (purchased through an employer or on their own) and $7,500 for those purchasing a single policy (through an employer or on their own). Amounts of the new standard deduction would be indexed to the Consumer Price Index.
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People who purchase employer-provided that costs less than the above amounts would see lower taxes because they could still take the full standard deduction. On the other hand, people purchasing more expensive policies would actually see their taxes increase because only the first $15,000 or $7,500 (family/individual) would be free from payroll and income taxes. According to the White House, about 80 percent of policies offered through employers are under the standard deduction and those policies would be subject to lower taxes.
The plan would also seek to expand healthcare coverage by offering the uninsured the same tax breaks as those who receive healthcare insurance through their employers.
How does the proposal impact employers? According to the White House, the only change is that health insurance premiums the employer has paid on behalf of an employee must be reported as wages on W-2 forms.
During a subsequent press briefing, the White House announced the intention to implement the plan beginning January 1, 2009. We’ll keep you posted on the status of the proposal.
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