By Laura Saunders; The Wall Street Journal ~ Feb 01, 2013

When you receive your W-2 for 2012, pay attention to a surprising new number on the form, especially if you are an upper-income-bracket taxpayer. The figure could threaten one of your most valuable tax breaks.

The W-2 is the annual tax form with wage and salary data that employers provide to workers and the Internal Revenue Service. Companies are required to send W-2s by the end of January.

The new number appears in Box 12 after the symbol “DD.” It shows the cost of your employer-sponsored health plan, if you have one. The number includes the combined amount paid by the company and the employee for coverage, but not worker contributions to flexible spending accounts or health-savings accounts—nor additional copayments or reimbursements.

Companies that prepare 250 or more W-2s have to report this figure to workers for 2012, as do many government agencies and nonprofits. Smaller employers have longer to comply with the requirement.

The new number, mandated by Congress as part of the 2010 health-care overhaul, shines a light on an important but little-understood benefit. In most cases, health-plan costs are “excluded” from income, which means they are tax-free. But most workers have been unaware of how large this benefit is because they haven’t seen it on their tax returns.

For many people, the health-plan tax break is more valuable than the highly popular mortgage-interest deduction on Schedule A, says Kelly Davis, an employee-benefits specialist at accounting firm CliftonLarsonAllen.

For example, the first-year deduction on a $400,000, 30-year mortgage with a fixed rate of 3.75% is $14,874, says Keith Gumbinger, an mortgage analyst at HSH.

In comparison, the average health-insurance premium last year was $16,427 per family at firms with many higher-paid workers (earning $55,000 or more), according to a survey by the Kaiser Family Foundation. In New York City, health insurance can cost $20,000 or more per family.

Since 1997, employer-sponsored health care has exceeded the mortgage-interest deduction as Uncle Sam’s most costly tax break, according to estimates by Congress’s Joint Committee on Taxation. Employer-sponsored health care costs the federal government $145 billion of revenue a year, compared with $93 billion for mortgage interest.

Health-plan costs also have risen far more rapidly than inflation. The average price of employer-sponsored family coverage nearly doubled between 2002 and 2012, according to the Kaiser Family Foundation. For the past three years, large-company chief executives surveyed by the Business Roundtable, a trade group, cited the trend as one of the group’s largest “cost pressure concerns.”

The U.S. government hopes putting the cost of health coverage on the W-2 form will “show employees the value of their health-care benefits so they can be more informed consumers,” according to the IRS.

It definitely will fill in a big blank for lawmakers and tax-policy experts. So far, most health-insurance data has come from surveys, says Roberton Williams, an economist at the nonpartisan Tax Policy Center in Washington, “but now there will be hard data from tax records.”

The reporting requirement also will put pressure on companies to abide by “antidiscrimination” rules designed to keep the coverage of highly paid executives in line with that of lower-paid workers, Ms. Davis says. “Many firms have been unaware of these rules, while some may have ignored them,” she says.

New taxes on health coverage are a possibility, too. In last year’s budget, President Barack Obama proposed capping the value of many tax benefits, including employer-sponsored health plans, at 28% for married couples with more than $250,000 of adjusted gross income, or AGI, or singles with more than $200,000—versus the current maximum rate of about 40%.

“It’s hard to figure out how this would work,” Mr. Williams says. That is because the 28% cap apparently refers to a bracket of taxable income, which includes itemized deductions. The proposed $250,000/$200,000 limits, by contrast, are tied to AGI, which doesn’t include these deductions.

Mr. Obama’s new budget is expected this month, and it will likely clarify what he proposes. For some taxpayers, it could be a real health scare.

Write to Laura Saunders at taxreport@wsj.com

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