Tax Exclusion for Employer Provided Health Insurance for 2011, 2012

Does your employer provide you with the option for health insurance but require you to pay a portion of it? If so, your premium is tax-free. This benefit is available to all employees, with the requirement that your employer provides the health insurance plan.

This tax exclusion for health insurance significantly reduces the employee's tax liability. Your health insurance premium is deducted from your gross pay before the federal tax is calculated, resulting in a savings to you. This policy was established in 1943 and designed to help workers reasonably afford health insurance. At this time, there are no set limitations on the amount that is tax-free; this may change per President Obama’s new health care bill.

However, there is a debate over this tax policy. Since three-fifths of the population under 65 is covered by employer-based health insurance, the government is losing considerable tax revenue.

This tax exclusion is also criticized because it gives a greater tax break for higher paid individuals and families. It is to be said that if health insurance premiums were taxed, it would benefit our country’s health care reform because the government would create a considerable amount of money from the taxation.

Also per President Obama’s new health care bill, your health insurance premium could no longer be tax-free and the employee would be required to pay tax on the premium amount. Also, there may be limitations put into place to be tax-free.

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