Will ObamaCare close the biggest tax loophole?

First, what’s the biggest tax loophole?

Answer: The non-taxable payments that companies make towards employees health insurance premiums.

These days, the policy to cover a husband, wife and a couple of kids is about $15,000.

Employers typically pick up about 2/3s of the bill … call it $10,000.

The $10,000 is tax deductible for the company, and isn’t taxed as employee compensation – even though it’s clearly part of an employee’s compensation package.

In total, the health insurance loophole amounts to over $170 billion annually … about twice the mortgage interest deduction … and about twice the “Bush tax cuts for the wealthy”.

Source:  Credit Suisse,  Neal Soss

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So, how might ObamaCare close this loophole?

First, there’s the tax surcharge on Cadillac healthcare plans.

Aimed at senior execs, this ObamaCare provision inadvertently caught unions, too … so its implementation was delayed until after Obama leaves office.

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Second, starting this year, employers have to report the portion of the premiums they pay on employees’ W-2s.

It doesn’t take a creative genius to guess where that one is heading.

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Third, there’s a more subtle – and way more substantial effect.

Remember the employer mandate and fine?

An employer will have to pay a $2,000 fine (per employee) if it doesn’t offer a health insurance plan.

Many employers have already figured out the paying a $2,000 fine is more cost-efficient than shelling out, say,  $10,000 in health insurance premiums.

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What are the implications?

Well, if an employer opts for the fine, they (the employer) saves $8,000 but losses the tax deduction … since fines aren’t tax deductible as a cost of doing business.

More important, the employee loses $10,000 in tax-free compensation.

Loophole closed.

That is, except for unions.

Since health insurance is written into most union contracts, union employees will likely be the last folks to have company paid health insurance.


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