New taxes are coming Jan. 1 to help finance President Barack Obama’s health care overhaul. Most people may not notice. But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.
The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.
It’s the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.