Financial Frontlines®

If you receive an email about a proposed substantial VA compensation increase, delete it. It is not true.

The email references a bill, H.R. 4667, which is a real bill, but the increases noted in the email are phony.

The actual bill expected to be signed by the President soon allows VA benefits to rise in conjunction with Social Security pay increases in 2011. There is no lump-sum rise in VA compensation of over 100% as the email states.

VA compensation is not tied to the same formula for Cost Of Living Adjustment (COLA) increases as Social Security and military pensions. As a result, each year Congress has to pass a bill specifically addressing increases in VA comp. They typically do so by tying a VA comp increase to the Social Security increase.

The bad news is Social Security and military retirement pay will not increase in 2011. The formula used for COLA increases in Social Security and military pensions adds up to no COLA for 2011—same as last year.

See the real bill for yourself here: http://www.govtrack.us/congress/bill.xpd?bill=h111-4667

The person who put this fake email together has a sick sense of humor.

Check out MOAA’s Battle of the Bilge blog for more information about the hoax.

We’ve all heard a lot of things about the recently passed Patient Protection Affordable Care Act (more commonly known as the “Health Care” Bill or Obamacare). Quite frankly, some of it has been hype, on both sides. But, one of the things that isn’t hype is how the law affects your Flexible Spending Arrangement/Account (FSA). Many of us have FSAs through our employers. FSAs allow us to spend pre-tax dollars on qualified expenses as established in a cafeteria plan. The most common qualified expenses are medical expenses and dependent care expenses. Most importantly for this article, non-prescription medication (also known as over the counter drugs) and medical items (such as first aid supplies) WERE considered qualified expenses. But the health care law changed that. Starting in 2011 (that’s right, next year) you will longer be able to use your FSA to buy non-prescription medications or medical items. This means several things for you.

First, if you use your FSA to buy non-prescription medications and medical supplies you need to adjust your FSA contributions for 2011 during open season. FSA have a “use it or lose it” clause. In other words, if you contribute money to an FSA and don’t spend it, it goes back to your employer. If you purchased your non-prescription meds through an FSA and you don’t adjust your contributions for next year, you stand a pretty good chance of leaving money on the table.

Second, the price of your non-prescription medications just went up by your marginal tax bracket. So if you are in the 25% marginal tax bracket, your non-prescription meds and medical supplies will cost 25% more next year (Another way to think of it is, to pay for $1.00 in non-prescription medications you’ll need to earn $1.33, $1.00 for the medication and $0.33 to pay the taxes on your income). You might want to take a look at your budget.

Third, you will pay more in taxes next year. Your taxable income will go up by the amount of the money you no longer put in the FSA for non-prescriptions drugs. This may or may not be significant for you. If you are on the cusp of the next tax bracket or if the additional income raises your AGI over limits for some deductions or credits (such as rental real estate losses, eligibility for Roth IRA contributions, or the American Opportunity Tax Credit or Hope Credit) the result could be more significant. If the change is significant, you may want to adjust your withholding or estimated tax payments.

The bottom line is you don’t want to ever leave your benefits on auto-pilot. If you don’t pay attention this fall, have an FSA and use your FSA for non-prescriptions medications you may leave money in your account. Regardless of whether you change your FSA or not, if you used your FSA for non-prescription meds the cost for your non-prescription meds and your taxes just went up…whether you’re in the middle class or one of “the rich”

Maybe you’ve seen the email.  The Government is going to tax your health insurance benefits so the cost of the insurance will be added to your pay stub.  Well, hold your horses everyone.

Yes, the new law requires an entry on the W-2 showing the cost of employer-provided care.  But that doesn’t mean the employee will be taxed on it.  The purpose of including it on the W-2 is mainly to show the employee what the value of the benefit is.  As for the tax aspect:

First off, there isn’t any tax on health benefits value before 2018.  Then at that time, it’s not the employees but the insurance companies that provide those plans that will be taxed on part of such value.

Second, there won’t be any taxes imposed on plans that aren’t deemed “Cadillac” plans (which are defined as those costing more than $10,200 for individual coverage or $27,500 for a family plan).

Next, the IRS is the agency responsible for enforcing the mandatory health insurance requirement in the future and this is the way they can monitor this requirement. 

Finally, the tax won’t be on the total value of the plan.  Insurers will be assessed a tax equal to 40% of whatever share of the value exceeds the $27,500 threshold.  i.e., if the value of a plan is $30,000, the insurer will be taxed 40% of $2,500 = $1,000.

While the real answer isn’t as good as ‘no health insurance cost on pay stub’, it’s not as bad as it’s being presented.  If this is an issue to you regardless of the back story, at least now you can contact your representative without the half-cocked version.