When Congress takes up tax reform, your fringe benefits may be on the line. Two tax overhaul proposals now before lawmakers both take aim at employer-sponsored benefits.
The plan introduced last month by House Democratic leader Richard Gephardt of Missouri redefines the taxable income of individuals.The proposal by GOP leader Richard Armey of Texas alters how your employer's taxable income would be computed.
Either approach could wind up costing employees.
- GEPHARDT'S PLAN counts the value of most fringe benefits as income to employees: medical plans, disability insurance premiums, tuition aid, employer contributions to retirement plans, group term life insurance and free parking.
A key to lowering tax rates under Gephardt's plan is to give the IRS more income to tax.
How the value of fringe benefits would be calculated has not been determined.
Take medical benefits, for example: Would an employee be taxed on a share of the total amount the firm pays, or on the actual benefits that employee receives?
The first option could penalize healthier employees, while the second could greatly increase the tax bill of employees whose medical costs are high.
- ARMEY'S PLAN for a flat tax scraps employer deductions for fringe benefits such as medical insurance, educational aid and group term life insurance.
But contributions to company retirement plans remain deductible.
Many employers are likely to cut benefits if they lose the deductions, since that would increase the cost of the fringes.
Keep an eye on the fringe benefit issue as the tax overhaul debate heats up over the next year or so.