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IAFF LEGISLATIVE FACT SHEET                                   Click Here for Key Points

TAX EXEMPTION FOR EMPLOYER-PROVIDED HEALTH CARE

The IAFF opposes the taxation of health benefits.

BACKGROUND

Health care benefits provided by employers to their employees are not currently counted as taxable income.  Similarly, employee contributions toward their health care premiums are made on a pre-tax basis.  As policy makers grapple with the enormous federal budget deficit, all options for increasing revenue are on the table, including ending the current tax exemption for employer-provided health benefits. 

The amount generated by ending the tax exclusion for employer-provided health benefits is significant.  The bipartisan Joint Committee on Taxation identifies it as the single largest tax expenditure in the tax code, costing $725 billion over five years.   As a result, the National Commission on Fiscal Responsibility and Reform, a bipartisan commission charged with finding ways to reduce the deficit, recently proposed the gradual elimination of the tax exclusion for employer-provided health care.  Building off this proposal, a bipartisan group of Senators, called the “Gang of Six,” called for reforming the tax exclusion in their deficit plan.  President Obama has also proposed limiting the tax exclusion for employer-provided health care by capping itemized deductions above the 28% tax bracket.

Taxing health benefits would particularly hurt fire fighters.  For years, fire fighters have accepted lower wages in exchange for better health coverage.  Fire fighters also face higher insurance premiums due to the risks posed by their profession.  That’s why fire fighter health plans often exceed $20,000 a year.  Removing the exemption would add thousands of dollars in additional taxes even though fire fighters earn middle-class salaries.

Congress previously rejected taxing health benefits during the health care debate.  Because of the excessive tax burden on fire fighters and other workers, Congress opted for an alternative tax on insurance companies to discourage the sale of high cost plans. No tax on health benefits was included in the final health care law.    

Eliminating the tax exemption is now back under consideration as a way to reduce the federal deficit even though it still remains unwise economic policy.  Removing the exemption will raise taxes on those least able to afford it.  Many fire fighters have had their wages frozen or cut during these bad economic times.  And it could undermine a fragile economic recovery. 

Taxing health benefits will also undermine an integral component of our health care system.  Enacted into law over 50 years ago, the tax exemption is a major reason why most Americans receive health care coverage through their employer.  Ending the exemption would undermine a system that provides affordable health care to 150 million Americans.

CONGRESSIONAL ACTION

The Senate Finance Committee and the House Ways and Means Committee are both planning to craft comprehensive tax reform proposals in 2013.  These proposals are likely to include limitations on tax deductions and exclusions.
 


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International Association of Fire Fighters
1750 New York Ave., NW, Washington, DC 20006 • 202.737.8484 • 202.737.8418 (Fax)
Copyright 2014 International Association of Fire Fighters.  Last Modified:  4/17/2014