And this one is a potential doozy!

As reported in Reuters, some Dems are open to the idea of taxing healthcare insurance benefits, currently paid by employers, as income!

“I think that tax provision should be on the table,” said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

“It’s too aggressive. It skews the system,” he said of the tax benefit.

Think about that for a moment. 

Then consider your own situation. 

If your employer currently provides your health insurance, even if you currently contribute something toward the policy premiums through payroll deduction, you do not pay taxes on the cost of your health insurance policy total cost.

Today, the average cost of a policy for an individual runs somewhere in the neighborhood of $5000, and for a family policy an average $12,000. 

The majority of this cost is paid by employers so few employees have any idea how much it really costs for their policy, they just know they’re happy they have coverage, even if they have to contribute toward the premium which is in pre-tax dollars.

If all of a sudden the paradigm changed and now you’re on the hook for paying taxes on that policy, as if the premiums are now part of your taxable income, how does that impact your personal finances and tax burden each year?

Each day it’s looking more and more like the policy makers in Washington are playing a big game of sleight-of-hand with the American taxpayers; as in, no we won’t increase your taxes by way of raising marginal rates falling below the current 33% level, so don’t pay attention to the stealth increases we’re going to hit you with, like cap-and-trade and including your health insurance premiums as taxable income!

As I noted in a post yesterday, a couple with an adjust gross income of $150,000 will not see their income taxes increase.  But what happens when their taxable income now includes a family health insurance policy worth $12,000 a year that’s primarily paid for by one of their employers?

Well, for one thing, today their federal income tax is $25,732 with personal and standard deductions only.

If this type of proposal moves forward and becomes the new standard to calculate income, this same couple now faces a tax increase, taxed on an AGI of $162,000, making their federal income taxes rise to $29,092 – an increase of $3,360 in federal income taxes.

But wait you say – they can deduct medical expenses and medical expenses includes insurance premiums.

Well now, let’s do math.

If their taxable income is $162,000, they can deduct medical expenses which exceeds 7.5% of their AGI – so at this new higher taxable income level, they can only deduct medical expenses exceeding $12,150. 

Ooops, they can’t deduct the cost of premiums that are driving up their tax burden – nope they just have to suck it up and pay, it is, afterall, for the greater good, right?

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