When the Affordable Care Act was signed into law by President Obama on March 23, 2010, it generated a lot of heated conversation, not only among Republicans and Democrats but among federal employees who wondered how it would affect them. In particular, it generated rumors that the government’s contributions to Federal Employee Health Benefit program premiums would be taxable as earned income. Yikes!

That concern had some basis in fact because the law did make clear that the aggregate cost of all applicable employer-sponsored health benefits coverage must be included when determining the value of that coverage.

I’ll pause for a moment for a show of hands by those of you who know the total cost of the plan you are enrolled in, not just the premiums you pay but the amount the government is kicking in. Hmm. I don’t see any hands being raised.

Want to guess what percentage the government pays? I see a few hands. For the rest, here’s the answer. The law provides that the maximum contribution the government makes to full-time employees is 72 percent of the weighted average cost of all plans, not to exceed 75 percent of any particular plan. In other words, on average for every $28 you pay in premiums, the federal government is paying $72.

So what does this have to do with taxes? It would mean a great deal if you were required to treat the government’s contribution as income. Fortunately, that’s not the case. The Internal Revenue Service has recently cleared the air with its Notice 2011-28 from which I’ll quote:

This notice provides interim guidance on informational reporting to employees to the cost of their employee-sponsored group health plan coverage…This reporting to employees if for their information only, to inform them of the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable. Nothing in §6051(a)(14), this notice, or the additional guidance that is contemplated under §6051(a)(14) causes or will cause otherwise excludable employer-provided health care coverage to become taxable.

While employers aren’t required to report the cost of health coverage before January 2013, they may do so on a voluntary basis, for example, on the 2011 Forms W-2.

If reporting is the only thing the law requires, why bother? Because in 2018, a “Cadillac’ tax will be levied on health insurance plans that cost more than $10,200 for individuals or $27,500 per family. That tax is 40% on any coverage that exceeds those limits.

While it’s anybody’s guess what FEHB costs will look like in 2018, I did a review of the total plan costs for all the FEHB fee-for-service plans and a sampling of HMOs for 2011 and could only find a few that were anywhere near the taxable levels.

Although you are not going to be taxed directly if your plan’s total costs do exceed the limits, current thinking is that those plans will pass on any taxes they have to pay to enrollees by increasing their premiums.