IRS Issues Revised Guidance on Form W-2 Health Coverage Reporting
The Affordable Care Act requires employers to report the aggregate cost of employer-provided health coverage on each employee’s W-2, beginning with the 2012 tax year (i.e., W-2 forms generally issued in January 2013). In 2011, the IRS issued interim guidance on the W-2 reporting requirement. In response to public comments, the IRS has now restated and amended its guidance to clarify several points and address additional issues. The revised guidance is applicable beginning with 2012 reporting but may be relied on by employers voluntarily reporting for 2011, and is effective until further guidance is issued.
Below are the highlights of this guidance:
• Employers Exempt From Reporting: Additional information is provided on the exemption for employers filing fewer than 250 Forms W-2 for the preceding calendar year. The revised guidance also clarifies that tribally chartered corporations that are wholly owned by a federally recognized Indian tribal government are exempt from the reporting requirement.
• Health FSAs: The reporting requirement does not apply to health FSA coverage funded solely through employee salary reduction elections. An example has been added to illustrate this point.
• Excepted Benefits: The revised guidance expressly provides that the cost of coverage under a dental or vision plan that qualifies as an excepted benefit is not required to be included in the aggregate reportable cost of coverage. Previously, this exception was described as applying to dental or vision coverage that was “not integrated into a group health plan providing additional health care coverage.”
• Calculating Reportable Cost: Employers that use a composite rate to determine premiums for active employees and another method to determine COBRA premiums may use either rate to determine the reportable cost of coverage but must use that method consistently when reporting the cost for each applicable group. An employer may also include in the reportable cost of coverage certain amounts that are not required to be included, such as the cost of coverage under an HRA. And in a change from prior guidance, excess reimbursements that are includible in the income of highly compensated individuals under Code § 105(h) are not included in the reportable cost of coverage.
• EAPs, Wellness Programs, and On-Site Medical Clinics: In general, coverage provided under these programs is includible in the reported cost of coverage to the extent that the program is a group health plan. However, such coverage is not reportable if the employer does not charge a premium for that coverage for purposes of COBRA or other federally required continuation coverage (or the employer is not subject to COBRA).
• Hospital or Other Fixed Indemnity Insurance: The cost of hospital or other fixed indemnity coverage, or coverage only for a specified disease or illness, is not reportable if the coverage is offered as an independent, noncoordinated benefit and is includible in the employee’s income or paid for on an after-tax basis. In contrast, the cost of such coverage is reportable when paid for on a pre-tax basis under a cafeteria plan or with employer contributions that are excludable from income.
• Other Issues: The guidance explains that the reportable cost of coverage may be based on the information available to the employer as of December 31, and need not be adjusted for later elections or notifications (e.g., a divorce or other change in family status) that retroactively affect coverage during the prior year. Other issues addressed include how the reporting requirement applies to related employers, reporting for programs that include health and non-health benefits, and coverage provided during a payroll period that straddles two calendar years.
You can view the IRS publication by clicking the below link:
http://www.irs.gov/pub/irs-drop/n-12-09.pdf
