New Reporting Requirement for Health Insurance Applies to next year’s W-2s … Start Your Record Keeping Now!
January 4, 2012 1 Comment
- Employer’s health insurance payments will have to be reported on the W-2 Forms starting in January 2013 (for 2012 wages)
- There is a temporary exception for businesses with fewer than 250 employees
- The temporary exception is expected to expire in January 2014
- All businesses should start keeping records to support this reporting requirement
The IRS recently issued a notice entitled “Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage.” The purpose of the notice is to provide guidance to employers on the informational reporting to employees about the cost of their employer-sponsored group health plan coverage. This requirement is found at § 6051(a)(14) of the Patient Protection and Affordable Care Act of 2010, and is intended to provide useful consumer information to employees. The reporting requirement is informational only and does not cause excludable employer-provided health care coverage to become taxable.
The guidance applies generally to the 2012 W-2 Forms. These are the forms required for calendar year 2012 and are provided to employees, and filed with the Social Security Administration, in January 2013. The guidance will be affect your actions in about a year, but the record keeping for 2012 starts now.
Those employers who wish to report cost of health coverage on 2011 Forms W-2 may also look to the notice for guidance, though reporting is not required for 2011. The reporting requirement does not apply to Forms W-2 issued prior to 2011, and reporting is not mandatory for the 2011 calendar year. Therefore, an employer will not be treated as failing to meet the requirements if it fails to include the aggregate cost of applicable employer-sponsored coverage on 2011 Forms W-2.
Note that this is interim guidance. It is therefore applicable until further guidance is issued. Any new guidance applies only going forward, and will not apply to any calendar year beginning within six months of issuance. So if new guidance was issued in July 2012, it would not take effect until January 2014.
Employers generally must provide a written statement to each employee showing the amount paid to the employee during the calendar year, by January 31 of the following year. This notice is provided on the Form W-2. Section 6051(a)(14) requires that aggregate cost of applicable employer-sponsored health coverage be reported to the employee on Form W-2. Contributions to an Archer MSA, any health savings account of an employee of spouse, or salary reduction contributions to flexible spending arrangements do not fall under § 6051(a)(14) [they fall under other reporting requirements, though]. The guidance also explains that “applicable employer-sponsored coverage” means coverage under any group health plan made available to the employee by the employer which is excludable from the employee’s gross income. Things that do not fall under “applicable employer-sponsored coverage” include liability insurance, workers comp, automobile medical payment insurance and other types of insurance under which medical care is secondary or incidental. These benefits are not subject to the new reporting requirement. Part II of the notice also provides a number of other definitions with which employers will want to ensure they are familiar.
The new reporting requirement has a broad mandate. All employers that provide applicable employer-sponsored coverage during the calendar year are subject to the requirement. However, in the case of the 2012 Forms W-2, and pending further guidance, employers are not subject to the reporting requirement for any calendar year if they were required to file fewer than 250 Forms W-2 for the preceding year. This means that businesses with fewer than 250 total employees (measured by number of W-2 Forms issued) will not need to perform this reporting exercise. This is temporary transition relief – the statute does not provide for this exception – so eventually the reporting requirement will apply to everyone; but for now, the interim guidance has established that the earliest that smaller businesses will have to make this report is in January 2014 (for the 2013 W-2 Forms).
The aggregate reportable cost is reported on Form W-2 in box 12, using the code “DD.” The total of the aggregate reportable costs attributable to an employer’s employees is not required to be reported on Form W-3. When an employee terminates employment, the employer may use any reasonable method of reporting the cost of coverage provided under a plan, provided the method is used consistently for all employees receiving coverage who terminate employment during that calendar year. Each employer for whom an employee works during a calendar year must report the aggregate cost of coverage provided. If an employee works for employers for whom there is a common paymaster, the common paymaster must include the aggregate reportable cost of coverage. The related employers who are NOT the common paymaster must not report the cost of coverage provided. If an employee transfers to an employer that qualifies as a successor employer, both the successor and predecessor employers must report the cost of coverage, unless the successor employer issues one Form W-2 reflecting all wages paid to an employee by both employers. If an employer is not required to otherwise issue a Form W-2, it is not required to issue one solely for reporting aggregate cost.
Aggregate reportable cost generally includes both the portion paid by the employer and the portion paid by the employee. The aggregate reportable cost includes any person covered under the plan because of relationship to the employee, including spouse, dependents, and adult children. This includes cost that is includible in the employee’s gross income.
In general, the cost of coverage under all applicable employer-sponsored coverage must be included in the aggregate reportable cost. The guidance, however, provides a number of exceptions that are not included in aggregate reportable cost and must not be reported. Employers should refer to § 6051(a)(14) and the interim guidance to familiarize themselves with these exceptions.
An employer may calculate the reportable cost in a couple of ways. An employer may use the COBRA applicable premium method. Under this method, the reportable cost for a period equals the COBRA applicable premium for the coverage period. Alternatively, an employer may use the premium charged method. This method may be used to determine the reportable cost only for an employee covered by an employer’s insured group health plan. Under this method, the employer must use the premium charged by the insurer for the employee’s coverage as the reportable cost.
An employer may use the modified COBRA premium method with respect to a plan only where it subsidizes the cost of COBRA or where the actual premium charged by the employer to COBRA qualified beneficiaries during a period is equal to the COBRA applicable premium for each period the prior year.
Reportable cost under a plan must be determined on a calendar year basis. If the cost for a period changes during the year, the reportable cost for the year must reflect the increase or decrease. If an employee changes coverage during the year, the reportable cost for the employee must take into account the change in coverage by reflecting the different reportable costs for the coverage elected by the employee for the periods to which those changes apply. If an employer is charging an employee a composite rate the employer may calculate and use the same reportable cost for a period for the single class of coverage under the plan or all the different types of coverage under the plan for which the same premium is charged to employees. This will depend on the type of composite rate the employer charges.