Monday, October 25, 2010


My fellow tax bloggers and I are constantly reporting on emails allegedly from the IRS that are in reality “phishing” scams, and reminding you that the IRS will NEVER initiate contact with a taxpayer via email.

But those are not the only emails you need to worry about. I am often forwarded tax-related emails that clients have themselves been forwarded, often from friends or family, with the question, “Is this true?”.

I would say that 99.9% of the time the email is pure reality tv (i.e. excrement).

My advice to clients is – Never believe what you read in an email about taxes unless the email comes from me! Similarly, you should never take an email about taxes seriously unless it comes from your own tax professional.

This is along the same lines as what I have identified as my best tax advice – DON’T ACCEPT TAX ADVICE FROM ANYONE OTHER THAN A PROFESSIONAL TAX PREPARER.

Often the person sending of forwarding the email to you is well meaning, and doing so with the best of intentions. They are just ignorant of the true facts. However, occasionally the email will purposely contain incorrect or misleading information for purely political reasons.

Here is an email that a client recently forwarded to me with the usual question. Please note that the part highlighted in red is my highlight, and not that of the author, the reason for which will appear clear later -

2011 W-2 Tax Forms

Should you want to verify this, go to, enter "HR 3590" in the search box and look for "CRS Summaries." This is what you'll find.

Title IX Revenue Provisions—Subtitle A: Revenue Offset

‘(Sec. 9002) Requires employers to include in the W-2 form of each employee the aggregate cost of applicable employer-sponsored group health coverage that is excludable from the employee's gross income (excluding the value of contributions to flexible spending arrangements).’

Starting in 2011—next year—the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided.

It doesn't matter if you're retired. Your gross income WILL go up by the amount of insurance your employer paid for. So you’ll be required to pay taxes on a larger sum of money that you actually received. Take the tax form you just finished for 2009 and see what $15,000.00 or $20,000.00 additional gross income does to your tax debt. That's what you'll pay next year. For many it puts you into a much higher bracket. This is how the government is going to buy insurance for fifteen (15) percent that don't have insurance and it's only part of the tax increases, but it's not really a "tax increase" as such, it a redefinition of your taxable income.

Also, go to Kiplinger's and read about the thirteen (13) tax changes for 2010 that could affect you.

Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November. So vote intelligently, based on your values.

But also adjust your tax withholding, or increase your savings, so that you aren't surprised and put in a jam when your federal income taxes are due on April 15, 2012


The reporting of the value of employer-provided health insurance benefits on the W-2 is for information purposes only – it is to provide evidence that the employee has health insurance coverage. This amount will NOT be added to the federal taxable wages reported in Box 1 of the W-2. You will NOT be taxed on this amount.

If you read the section I highlighted in red you will see that it clearly identifies this amount as the “cost of applicable employer-sponsored group health coverage
that is excludable from the employee's gross income

As pointed out in

Section 9002 of PPACA, the patient Protection and Affordable Care Act (H.R. 3590), requires that all employers, beginning in 2011, report the aggregate cost of employer-sponsored health benefits they provide to employees on those employees’ W-2 forms. However, the monetary values so reported will neither be counted as gross income nor will they be taxed; they will be included for informational purposes only. (Section 106A of the Internal Revenue Code states that, in general, employer-provided health coverage is not taxable to the employee.)

What is true, again according to (the hightlight is mine) –

In general, beginning in 2018 (not 2011), the PPACA imposes a 40% excise tax on the value of employer-sponsored medical insurance that exceeds a given threshold (initially $27,500 annually). This excise tax would be paid by the insurance company, not the employee, and is initially expected to affect fewer than 10% of families covered by health insurance.”

You can read more about this excise tax on “Cadillac” health plans at

As a point of information, according to the IRS website (again the highlight is mine) –

Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2 However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the IRS will defer the reporting requirement for 2011, making that reporting by employers optional in 2011.”

And that is the truth!



Peter Reilly said...

The only thing is that I think the reporting might make it easier for them to score the exclusion as future revenue raiser. Personally I think the exclusion is not good policy, but keeping track of what the law is is enough of a challenge so I don't give much thouhgt to what it should be.

Nick D. said...

good advice! the spam in my inbox is becoming over whelming! I was wondering if I could get a tax pro's thoughts on a concept known as becoming your own bank or Infinite Banking. let me know what you think of if you want some more info.