The workplace.biz
Perspectives on Benefits
George L. Chimento
____________________________________________________
Tax treatment should be the same for health insurance
July 17, 2009
The self-employed who want to pay their bills, and who don't want to be
dependents, don't count for much in official circles. They cannot get the same tax
breaks and pricing for insurance and medical care as those who are in large
employee or government groups. These extra non-group costs make it expensive
and dangerous to self-insure, and to simply purchase an umbrella to cover
catastrophic illness. The laws which affect taxes and pricing have to be changed so
that everyone gets the same deal.
Let's first start with taxes. If you work for a company that provides insurance, you
pay no income tax or employment tax on the company share of the premium, or on
the portion you pay, assuming your employer sponsors a 125 plan which
creates that tax magic. It's a great deal for those lucky enough to have those jobs.
If you are self-employed, like a guy thrown out of work who is struggling as a
"consultant", you are punished by the tax law. First, the amount you pay for your
health policy is taxable for self-employment tax purposes. That means a non-
deductible 15.3% add-on to your insurance cost. Also, if your consulting
practice is not making money, the health insurance cost is not deductible against
your other income, like withdrawals from an IRA while you are trying to get back on
your feet, except to the extent your overall medical costs exceed 7.5% of your
adjusted gross income. Forget having a 125 plan. You are disqualified because you
are an "owner" of your worthless little business.
So the little guy, who doesn't have that great job with a big company or a
government, pays more taxes. It gets worse. If you are a little guy and would
prefer to self-insure, here's what happens. Get sick, and the hospital will charge
three times what it would have charged if you had been employed in
a well-managed group, or if you had been on Medicare, which negotiates low rates
for its large group.
The effect of unfair tax law, and unfair pricing which is prejudiced against
individuals, is at the heart of the problem. If the self-employed could self insure,
and get the same tax breaks and pricing as individuals in large groups, many would
drop insurance in a minute, and we would then get some market discipline in this
abused sector of the economy.
____________________________________________________
State tax rules should not favor public sector retirees
4/19/09
Sean Murphy of the Boston Globe is writing a series of good articles about the
Massachusetts public pension system. He points out that well connected rogues
have brought the entire system, a complicated mix of statute and custom, into
disrepute. It’s good reporting, and there may even be a mild legislative reform to
cure some of the more visible abuses.
However, the reforms won’t go far enough until the same tax rules apply to public
retirees as to the rest of us. Tax equality for pension income is as big an issue as
the peccadilloes of well-connected politicians. In Massachusetts, we have two tax
systems for retirement pay:
-- private sector retirees pay state income tax on whatever they receive as
retirement income (except for social security).
-- government sector employees do not pay state income tax on their pensions,
which can be as high as 80% of final three year average compensation.
The best solution would be to extend the Massachusetts tax exemption to private
sector retirees, except for very large amounts that exceed what the public plans
pay. We then would not be encouraging private sector retirees to abandon
Massachusetts for tax haven states, a terrible drain for our economy.
If that's too radical, then tax the government retirees, but be fair. Allow them
credit for the "social security" portion of their public pensions, because the State
system theoretically replaces social security, which is exempt in Massachusetts. If
the amounts they contribute are greater than that, give them credit for the
overage so that they are not taxed twice. In other words, just treat them like the
private sector retirees.
Incidentally, well over 4 billion is paid each year in pensions to retired
Massachusetts public workers. And that's before baby boom retirements. The lost
tax revenue in future years will be in the hundreds of millions.
In considering whether a tax break exclusively for government retirees is fair,
there's another consideration. The public system has lost a big chunk of its assets
due to a heavy allocation in equities. Private taxpayers, with little in the way of
retirement funds themselves, will have to bail it out. Is it fair that public pensions
continue to be tax free?
____________________________________________________
New COBRA, and all the other rules
4/6/09
ARRA-COBRA is a typical well-meaning effort from Washington which shows ZERO
consideration for employers, many of whom are struggling to stay in business. Most
will comply, or try to comply, but the expense and aggravation of this law and
others, like the new ADA rules that essentially characterize every worker as
disabled in some form or other, simply drives home an unfortunate point.
Washington has too many people writing rules for the workplace, and they
unwittingly have made every employee a potential liability. Only the governments
and the largest employers have the resources to handle this pell-mell barrage of
new laws and new regulations.
Consider. This little COBRA “subsidy” has engendered an IRS Notice with 58 Q&As,
IRS web pages, a one inch thick packet of model forms from DOL with immediate
deadlines, and a robust DOL web page that changes weekly. For this little law,
guidance is also required from state governments and insurers. The potential fines
and the compliance burden are just not appropriate for a country that should be
encouraging job growth.
____________________________________________________
Imputed income
3/17/09
It's time to simplify the federal "imputed income" doctrine for health insurance.
Why should an employee be taxed if or she opts to cover family members who are
technically not health care "dependents" under the Internal Revenue Code?
The current law leaves employers with the unpleasant chore of taxing employees
when coverage includes ex-spouses, non-dependent children, or non-dependent
spouses of the same sex. Adding to the problem, IRS has never issued a definitive
ruling on how to calculate "imputed income." So employers really don't know if they
should impute the cost of single coverage, or if they are safe in just imputing any
incremental cost.
It's time to change the federal law. Much of this hassle at the federal level was to
punish with taxes those persons whose lifestyles didn't pass muster. How mean
spirited to increase the cost of a person's health insurance that way.
Massachusetts is a good model for federal reform on this issue. Since 2007,
Massachusetts has not imputed state income tax when same-sex spouses are
covered, or when older, non-dependent children are covered for two additional
years (up to age 26). On March 16, 2009, Massachusetts has issued a draft circular,
retroactive to 2007, that coverage of ex-spouses will be treated the same way. No
state taxes will be imputed to the employee who covers an ex-spouse. That doesn't
solve the federal tax problem, of course.
The federal law is stuck in a time warp. Employees should not be taxed if they get
group coverage that covers their family members, members of their household, or
former spouses. At a time when people need affordable health insurance, the
current federal tax policy is intolerable.
____________________________________________________________________
America needs compensation disclosure from the elected
2/27/2009
Elected officials complain about CEO compensation. Agreed. It has been excessive
in some cases. How do we get that information? It is disclosed on compensation
tables and public releases in proxy statements, 10-Qs, 10-Ks, and 8-Ks. We may
resent the largesse, but at least we can see it.
Where is the uniform disclosure counterpart for Congress and State legislators?
Where do we see a coherent compensation table which quantifies the benefits of
multi-million dollar packages that include tax-free campaign funds, defined benefit
pensions, health insurance, free travel, and the income which derives from high
influence, like book deals, honoraria, and legal and consulting fees? What about
relatives on government payrolls, and the salaries and pensions they get for no-bid
jobs?
Clear disclosure of compensation is a required step for good regulation of any
enterprise, especially government.
____________________________________________________________________
A victory for 401(k) sponsors
2/25/2009
The 7th Circuit has correctly held that "revenue sharing" arrangements in self-
directed 401(k) plans are not evil. The Labor Department, and the plaintiffs' bar,
have gone out of their way to discourage good employers from sponsoring 401(k)
plans. Good job, 7th Circuit, for rejecting their nonsense. Employers should not be
public enemies just because they sponsor retirement plans. John Deere has a good
401(k) plan that gives employees access to 2,500 Fidelity funds at reasonable cost.
If we want employers to sponsor 401(k) plans, the DOL better wake up and pursue
real villains, not companies like Deere. Here's a link to an article from the winning
law firm. Congratulations, Morgan Lewis.
June 24, 2009 Rehearing denied. The Seventh Circuit confirms that no rehearing is
necessary.
____________________________________________________________________
Perspectives on Benefits
George L. Chimento
____________________________________________________
Tax treatment should be the same for health insurance
July 17, 2009
The self-employed who want to pay their bills, and who don't want to be
dependents, don't count for much in official circles. They cannot get the same tax
breaks and pricing for insurance and medical care as those who are in large
employee or government groups. These extra non-group costs make it expensive
and dangerous to self-insure, and to simply purchase an umbrella to cover
catastrophic illness. The laws which affect taxes and pricing have to be changed so
that everyone gets the same deal.
Let's first start with taxes. If you work for a company that provides insurance, you
pay no income tax or employment tax on the company share of the premium, or on
the portion you pay, assuming your employer sponsors a 125 plan which
creates that tax magic. It's a great deal for those lucky enough to have those jobs.
If you are self-employed, like a guy thrown out of work who is struggling as a
"consultant", you are punished by the tax law. First, the amount you pay for your
health policy is taxable for self-employment tax purposes. That means a non-
deductible 15.3% add-on to your insurance cost. Also, if your consulting
practice is not making money, the health insurance cost is not deductible against
your other income, like withdrawals from an IRA while you are trying to get back on
your feet, except to the extent your overall medical costs exceed 7.5% of your
adjusted gross income. Forget having a 125 plan. You are disqualified because you
are an "owner" of your worthless little business.
So the little guy, who doesn't have that great job with a big company or a
government, pays more taxes. It gets worse. If you are a little guy and would
prefer to self-insure, here's what happens. Get sick, and the hospital will charge
three times what it would have charged if you had been employed in
a well-managed group, or if you had been on Medicare, which negotiates low rates
for its large group.
The effect of unfair tax law, and unfair pricing which is prejudiced against
individuals, is at the heart of the problem. If the self-employed could self insure,
and get the same tax breaks and pricing as individuals in large groups, many would
drop insurance in a minute, and we would then get some market discipline in this
abused sector of the economy.
____________________________________________________
State tax rules should not favor public sector retirees
4/19/09
Sean Murphy of the Boston Globe is writing a series of good articles about the
Massachusetts public pension system. He points out that well connected rogues
have brought the entire system, a complicated mix of statute and custom, into
disrepute. It’s good reporting, and there may even be a mild legislative reform to
cure some of the more visible abuses.
However, the reforms won’t go far enough until the same tax rules apply to public
retirees as to the rest of us. Tax equality for pension income is as big an issue as
the peccadilloes of well-connected politicians. In Massachusetts, we have two tax
systems for retirement pay:
-- private sector retirees pay state income tax on whatever they receive as
retirement income (except for social security).
-- government sector employees do not pay state income tax on their pensions,
which can be as high as 80% of final three year average compensation.
The best solution would be to extend the Massachusetts tax exemption to private
sector retirees, except for very large amounts that exceed what the public plans
pay. We then would not be encouraging private sector retirees to abandon
Massachusetts for tax haven states, a terrible drain for our economy.
If that's too radical, then tax the government retirees, but be fair. Allow them
credit for the "social security" portion of their public pensions, because the State
system theoretically replaces social security, which is exempt in Massachusetts. If
the amounts they contribute are greater than that, give them credit for the
overage so that they are not taxed twice. In other words, just treat them like the
private sector retirees.
Incidentally, well over 4 billion is paid each year in pensions to retired
Massachusetts public workers. And that's before baby boom retirements. The lost
tax revenue in future years will be in the hundreds of millions.
In considering whether a tax break exclusively for government retirees is fair,
there's another consideration. The public system has lost a big chunk of its assets
due to a heavy allocation in equities. Private taxpayers, with little in the way of
retirement funds themselves, will have to bail it out. Is it fair that public pensions
continue to be tax free?
____________________________________________________
New COBRA, and all the other rules
4/6/09
ARRA-COBRA is a typical well-meaning effort from Washington which shows ZERO
consideration for employers, many of whom are struggling to stay in business. Most
will comply, or try to comply, but the expense and aggravation of this law and
others, like the new ADA rules that essentially characterize every worker as
disabled in some form or other, simply drives home an unfortunate point.
Washington has too many people writing rules for the workplace, and they
unwittingly have made every employee a potential liability. Only the governments
and the largest employers have the resources to handle this pell-mell barrage of
new laws and new regulations.
Consider. This little COBRA “subsidy” has engendered an IRS Notice with 58 Q&As,
IRS web pages, a one inch thick packet of model forms from DOL with immediate
deadlines, and a robust DOL web page that changes weekly. For this little law,
guidance is also required from state governments and insurers. The potential fines
and the compliance burden are just not appropriate for a country that should be
encouraging job growth.
____________________________________________________
Imputed income
3/17/09
It's time to simplify the federal "imputed income" doctrine for health insurance.
Why should an employee be taxed if or she opts to cover family members who are
technically not health care "dependents" under the Internal Revenue Code?
The current law leaves employers with the unpleasant chore of taxing employees
when coverage includes ex-spouses, non-dependent children, or non-dependent
spouses of the same sex. Adding to the problem, IRS has never issued a definitive
ruling on how to calculate "imputed income." So employers really don't know if they
should impute the cost of single coverage, or if they are safe in just imputing any
incremental cost.
It's time to change the federal law. Much of this hassle at the federal level was to
punish with taxes those persons whose lifestyles didn't pass muster. How mean
spirited to increase the cost of a person's health insurance that way.
Massachusetts is a good model for federal reform on this issue. Since 2007,
Massachusetts has not imputed state income tax when same-sex spouses are
covered, or when older, non-dependent children are covered for two additional
years (up to age 26). On March 16, 2009, Massachusetts has issued a draft circular,
retroactive to 2007, that coverage of ex-spouses will be treated the same way. No
state taxes will be imputed to the employee who covers an ex-spouse. That doesn't
solve the federal tax problem, of course.
The federal law is stuck in a time warp. Employees should not be taxed if they get
group coverage that covers their family members, members of their household, or
former spouses. At a time when people need affordable health insurance, the
current federal tax policy is intolerable.
____________________________________________________________________
America needs compensation disclosure from the elected
2/27/2009
Elected officials complain about CEO compensation. Agreed. It has been excessive
in some cases. How do we get that information? It is disclosed on compensation
tables and public releases in proxy statements, 10-Qs, 10-Ks, and 8-Ks. We may
resent the largesse, but at least we can see it.
Where is the uniform disclosure counterpart for Congress and State legislators?
Where do we see a coherent compensation table which quantifies the benefits of
multi-million dollar packages that include tax-free campaign funds, defined benefit
pensions, health insurance, free travel, and the income which derives from high
influence, like book deals, honoraria, and legal and consulting fees? What about
relatives on government payrolls, and the salaries and pensions they get for no-bid
jobs?
Clear disclosure of compensation is a required step for good regulation of any
enterprise, especially government.
____________________________________________________________________
A victory for 401(k) sponsors
2/25/2009
The 7th Circuit has correctly held that "revenue sharing" arrangements in self-
directed 401(k) plans are not evil. The Labor Department, and the plaintiffs' bar,
have gone out of their way to discourage good employers from sponsoring 401(k)
plans. Good job, 7th Circuit, for rejecting their nonsense. Employers should not be
public enemies just because they sponsor retirement plans. John Deere has a good
401(k) plan that gives employees access to 2,500 Fidelity funds at reasonable cost.
If we want employers to sponsor 401(k) plans, the DOL better wake up and pursue
real villains, not companies like Deere. Here's a link to an article from the winning
law firm. Congratulations, Morgan Lewis.
June 24, 2009 Rehearing denied. The Seventh Circuit confirms that no rehearing is
necessary.
____________________________________________________________________
