Why should your tax liability be dependant on something that your employer does or does not do? Basic fairness demands that your tax burden be dependent on your own specific circumstances, such as your income, your number of dependents etc. However, the tax code is riddled with examples where Uncle Sam reaches into your pocket to a different extent depending on the benefits that your employer provides. Here are some prime examples, but I am sure that there are many, many others:
Childcare Flex Accounts - childcare flex accounts allow you to reduce your tax liability, by paying with pre-tax money for childcare expenses, up to a limit specified in law (I believe it's $5,000). My previous employer offered childcare flex accounts, which I maxed out annually to great benefit. My current employer is not offering a childcare flex and consequently, even though we can get a deduction for childcare expenses, my accountant tells me that our tax liability was hundreds of dollars higher than it would have been had a flex account been in place.
Medical Flex Accounts - In my previous company I was able to deposit $1,500 annually in a medical flex account, leading to hundreds of dollars in tax savings on our medical expenses. Since my current employer does not offer this benefit, the only way we would have been able to deduct our medical expenses is if they had exceeded 7.5% of our adjusted gross income. Since - thankfully - our medical expenses do not reach that minimum, we end up paying considerably more in taxes.
401K vs. IRA - why is it that if your employer offers a 401K plan you can contribute $16,500 towards your retirement but can only contribute $5,000 to an IRA if your employer does not offer such a plan? What is the rationale for tax discrimination against people whose employer does not care about their retirement? Similarly, why is it that unemployed individuals are not permitted to contribute the full 401K allowable amount?
ROTH 401K vs. Regular 401K - does it make sense that if your employer offers a ROTH 401K option you are able to make a full $16,500 in after tax contributions to a ROTH account, regardless of your income, but you cannot contribute a single cent to a ROTH IRA account if your adjusted gross income is over $169,000 (for joint filers).
The tax code is riddled with asinine and capricious tax rules. It is time for Congress to take up serious tax reform and to do away with this injustice. The amounts you save for retirement or are able to deduct from your tax liability should have nothing to do with the benefits that your employer chooses to offer. The tax treatment of individuals should be equal and based on their own unique circumstances rather than on the decisions of their company's benefits administrators.
1 comment:
As with health insurance, none of this should be tied to your employer at all. Or, more specifically (regarding the health insurance, at least), there should be no tax advantage for having it tied to the employer. If an employer wants to offer discounted health insurance, 401(k) matching, or other ancillary benefits, that's fine (though they should probably be taxed).
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