W-2 forms now listing health care costs

Employees have some new information on their W-2 forms for 2012 - the cost of their employer-provided health insurance.

This amount shows up in box 12 with the code DD. It includes what the employer and employee paid in premiums last year. To find out what your employer paid, subtract what you paid (look at your last pay stub for 2012) from the DD amount.

The amount in this box is not taxable, although many fear that could change as Congress looks for ways to raise revenues.

The cost of health coverage paid by your employer is not included in your income, but your employer can deduct it as a business expense. The share you pay is also excluded from your income; it's paid with pre-tax dollars.

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The Affordable Care Act (Obamacare) required employers that provide group health coverage to report this cost to employees and the Internal Revenue Services on W-2s starting with 2012 forms. (The military and Indian tribal governments are exempt.)

The requirement is supposed to make employees more aware of health care costs. But it also "establishes the infrastructure for the tax treatment to change on employer-provided health care," says Christopher Renz, a partner with consulting firm Mercer.

The exclusion for group health care is the single biggest tax break. It will cost the government $164.2 billion in fiscal 2014, surpassing the exclusion on employer-provided pensions ($162.7 billion) and the mortgage-interest deduction ($99.8 billion), according to the Congressional Research Service.

Critics say this tax break encourages the over-consumption of health care. Various proposals have called for limiting it or phasing it out.

"I think it is a matter of time before it erodes in some fashion," Renz says. But he doubts that Congress will do away with it entirely. "Policymakers would have some concern that would cause more employers to stop providing health care and that's not what they want to do."

Employers had until Thursday to distribute 2012 W-2 forms.

The amount labeled DD reflects insurance premiums and does not include out-of-pocket costs such as co-pays and deductibles. It might or might not include premiums for vision and dental insurance, depending on how your employer packages them with medical insurance.

It also does not include Health Savings Accounts or Archer Medical Savings Accounts, which are reported differently.

Renz says the average cost of group health care is $6,000 to $7,000 for individuals and $14,000 to $15,000 for families. Employers typically cover 75 percent of the cost and employees the rest.

FHA changes afoot

The Federal Housing Administration on Wednesday provided more details on changes it is making to shore up its mortgage insurance fund, which has been hard hit by losses on mortgages it backed during the boom years. Housing and Urban Development Secretary Shaun Donovan previewed most of these changes in December.

FHA will no longer offer its most popular type of reverse mortgage, the standard fixed-rate Home Equity Conversion Mortgage. Borrowers who want a fixed-rate HECM reverse mortgage can only get the saver option, which has virtually no up-front fee but lets seniors borrow 10 to 14 percent less than they can with the standard option.

Seniors will still be able to get a standard HECM adjustable rate mortgage, "which is what HUD is hoping to drive," says Peter Bell, chief executive of the National Reverse Mortgage Lenders Association. To get the standard fixed-rate loan, borrowers must apply and complete their required counseling before April 1. The loan must close by July 1.

Within a few days, FHA will announce effective dates for these changes:

-- FHA will raise the annual mortgage insurance premium on most new FHA-backed loans to 1.35 percent from 1.25 percent and to 1.55 from 1.5 percent on loans that exceed $625,500. FHA guarantees loans up to $729,750 in high-cost areas, including most Bay Area counties. Certain streamlined finance loans are exempt from the rate increase. It is not raising the up-front fee.

-- FHA will require most borrowers to continue paying annual insurance premiums for the life of their loan. Since 2001, it has been canceling mortgage insurance when the loan balance falls below 78 percent of the original balance. However, because it still insures 100 percent of the loan balance, it will no longer cancel insurance on new loans taken out after a certain date.

-- FHA will require lenders to manually underwrite loans for borrowers with a credit score below 620 and a total debt-to-income greater than 43 percent and "document compensating factors" that support their decision to make such loans.

-- FHA will propose increasing the down payment requirement on mortgages above $625,500 to 5 percent from its standard 3.5 percent.

For details, see http://tinyurl.com/aas9nk7.

More tax delays

Tax season finally opened Wednesday, 13 days later than last year thanks to the fiscal cliff drama. But not everyone will be able to file just yet. The IRS announced Monday that people claiming two popular college credits won't be able to file until mid-February.

The American opportunity and lifetime learning credits are both filed on Form 8863, and the IRS didn't have time to properly test that form.

The IRS also announced this week that it won't slap an underpayment penalty on farmers and fishermen who don't pay their 2012 taxes by March 1. One of the forms they often file won't be available until late February or March. For details, see my Tuesday blog post at blog.sfgate.com/pender.