Case Study #6: The Exclusion for Employer Provided Health Insurance
In this case study, the authors write that until recently, employers were generally not required to put the value of health care premiums on employees’ W-2 year-end tax forms. Consequently, the JCT and the Treasury have looked to other data sources and studies to infer it. This may partially explain why the two government entities have very different estimates of this tax expenditure’s dollar amount, although they both show it to be extremely large. In examining this tax-free fringe benefit, we made the approximation that employer-provided health coverage averages 7 percent of salaries and wages. In a conventional revenue estimate that holds the economy’s total sized fixed, the Tax Foundation’s model estimates that removing the tax exemption for employer-provided health coverage would have boosted federal individual income tax collections by $160 billion in 2012.