Is Employer-Paid Health Insurance Taxable?

If you have to take sick leave, your sick pay is taxable.

If you have to take sick leave, your sick pay is taxable.

You don't pay tax on your workplace health insurance. Even if your employer's paying part or all of the premium, the IRS doesn't count the money as taxable income. You may see health insurance listed on your W-2 along with your pay, but that's a matter of record-keeping, and doesn't affect your taxable income.

The W-2

Starting with the 2012 tax year, most employers have to report the value of your health insurance on your W-2 form. This came out of the 2009 Affordable Care Act, which requires W-2s to show the cost of health-care coverage so you can find out how much your coverage is worth. The government is giving smaller companies added time to transition to the new form, so your W-2 may not meet the new standards yet.

Benefits

Getting health insurance from your employer isn't taxable but using the benefits can be. If your plan pays out to reimburse you for what you spent on medical expenses, there's no tax. If you get other payments for being sick or injured, those are potentially taxable. Any benefit that makes up for lost wages while you're out from work, including regular sick leave, is taxable, just as if you'd earned the money working.

More Benefits

What decides if you pay tax on your benefits is the premiums. If you pay 100 percent of the plan premiums, you can relax: none of the benefits you get are taxable. If your employer pays the whole premium, benefits are 100 percent taxable. Unsurprisingly, if your employer pays, say, 60 percent of the premium, benefits are 60 percent taxable. If you buy health insurance through a cafeteria plan and the premiums aren't included in your personal income, the benefits are also taxable.

Other Insurance

If you're injured on the job and you get workers' comp, whatever money you get is taxable income. The IRS treats long-term care insurance as a payment for sickness and injury, so the benefits are taxable. If you get long-term care payments as a per diem amount -- that is, you receive a certain amount every day -- you can file Form 8853 with your 1040 to get them excluded from your taxable income.

 

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Author of two film reference books, "Cyborgs, Santa Claus and Satan" and "The Wizard of Oz Catalog." Published in Air & Space, Backpacker, Newsweek, The Writer, and multiple trade journals (can fax samples if requested, don't have them available digitally)

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