Group Health Insurance Coverage Cost Reporting to Employees

The following article is the first of a four part series which will discuss group health insurance coverage cost reporting to employees guidance contained in IRS Notice 2011-28 with the addition of IRS Notice 2012-9's clarifications, modifications and additional guidance.  The combined IRS notices contain 38 questions and answers (Q&A) in total.

The first segment will cover:

the Background of the IRS Notices;

the General Requirements;

the Employers Subject to Reporting Requirements,

the Method of Reporting on the Form W-2;

The second segment will cover:

            the Aggregate Cost of Applicable Employer-Sponsored Coverage; and

            the Cost of Coverage Required to be Included in the Aggregate Reportable cost

The third segment will cover:

            Methods of Calculating Cost of Coverage; and

            Other Issues Relating to Calculating the Cost of Coverage

The last segment of the four part series will cover:

             the Additional Guidance added to IRS Notice 2012-9

Background

The IRS issued interim guidance, IRS Notice 2011-28, on informational reporting to employees of the cost of their group health insurance coverage.  IRS Notice 2012-9 restates and amends the interim guidance provided in IRS Notice 2011-28 and 2011-16 I.R.B. 656.  The reporting of the cost of group health insurance coverage is required under §6051(a)(14) of the IRS Code (Code), enacted as part of the Patient Protection and Affordable Care Act of 2010 (the Affordable Care Act).  The Law, 111-148, is to provide useful and comparable consumer information to employees on the cost of their health care coverage.  To see the complete Q&A for each IRS notice please click on the specific link above.

IRS Notice 2011-28's Q&A section covers the following:  1 and 2 discuss general requirements; 3 identifies the employers subject to the reporting requirements; 4 through 10 provides the methods for reporting the cost of the coverage on the W-2; 11 through 15 defines certain terms related to the cost of coverage required to be reported on the W-2; 16 through 23 lists the types of coverage the cost of which is required to be included in the amount reported on the W-2; 24 through 27 discusses several calculation methods that may be used to determine cost of the coverage; 28 through 31 covers issues that may arise in determining the cost of the coverage.

IRS Notice 2012-9's Q&A section modifies 3 tribally chartered corporations are not subject to the reporting requirement; 7 clarifies the application of the reporting requirement to certain related employers not using a common paymaster; 19 adds a new example that the reporting requirements do not apply to flexible spending accounts (FSA) if contributions occur only through employees salary reduction elections; 20 clarifies the standard for determining whether coverage under a dental plan or vision plan is subject to the reporting requirements; 23 modifies and corrects excess reimbursements of highly compensated premium payments in gross income and the treatment of the employer payment or reimbursement of health insurance premiums of a 2% shareholder-employee of an S corporation; 28 clarifies the application of the reporting requirement if a composite rate is used with respect to premiums paid but not the premium charged under COBRA to a qualifying beneficiary. It also provides  the following new guidance: 32 provides guidance on an employee assistance program (EAP), wellness program, or onsite medical clinic on the reportable amount if the employer does not charge a premium with respect to the type of coverage under COBRA to a qualifying beneficiary; 33 clarifies inclusion of coverage under programs not required to be included under applicable interim relief, such as the cost of coverage under a Health Reimbursement Arrangement (HRA); 34 clarifies how to calculate a portion of the cost for coverage under a group health plan; 35 explains when adjustments to a W-2 are not required; 36 clarifies how to calculate a portion of the cost if the coverage extends over the payroll period including December 31; 37 and 38 clarifies the application of the exception for certain hospital indemnity or other fixed indemnity insurance offered by an employer on an after-tax basis; and 39 provides that the reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider.

General Requirements

Code Section 6051(a) an employer must provide a written statement to be used for informational purposes only to each employee showing the cost of their group health insurance coverage cost paid by the employer to the employee during the calendar year, on or before January 31 of the succeeding year, or if the employee terminates during the year, within 30 days after the date of receipt of a written request by the employee submitted before January 2 and then file with Social Security Administration (SSA).  The medium to provide the information is Form W-2, Wage and Tax Statement.  (Q&A 1 and 2)

Employers Subject to Reporting Requirements:

All employers that provide applicable employer-sponsored coverage during a calendar year, this includes federal, state, and local government entities, churches and other religious organizations, and employers not subject to the COBRA continuation coverage requirements excluding Federally recognized Indian tribal governments.  New in IRS Notice 2012-9, if an employer filed fewer than 250 2011 W-2s in January of 2012, the employer is not subject to the reporting requirement for Forms W-2 for the 2012 calendar year or later years unless and until further guidance is issued. (Q&A 3)

Method of Reporting on the Form W-2 (4-10)

When and Where to Report Costs on Forms W-2:

The reporting of the cost of the employee's health care coverage applies with 2012 Forms W-2, issued in January 2013 and is calculated on a calendar year basis. (Q&A 4)

The aggregate cost of applicable employer-sponsored coverage needs to be reported in box 12, using code DD. Employers do not have to complete box 12 for a terminated employee who requests a W-2 prior to the end of the calendar year during which the employee terminated. (Q&A 5, 6 with examples)

Multi Employers

When employees have multiple employers in a calendar year, each employer providing employer-sponsored coverage must report the aggregate reportable cost of coverage it provides.  However, if the employers are related employers and one such employer is the common paymaster for an employee that is concurrently employed and their wages are paid through the common paymaster than the common paymaster must include the aggregate reportable cost of the coverage provided to the employee by all the employers for whom it serves as the common paymaster on the Form W-2 issued by the common paymaster.  The related employers that are not the common paymaster must not report the cost of coverage they provide.  If the employers are related employers but do not compensate an employee that is concurrently employed with a common paymaster, then with respect to that employee, the related employers may either report the entire aggregate reportable cost on one of the Forms W-2 provided to the employee, or allocate the aggregate reportable cost among the employers that concurrently employ the employee using any reasonable method of allocation. (Q&A 7)

New Employer Mid-Year

When an individual transfers to a new employer that qualifies as a successor employer under Code §3121(a)(1), both the predecessor and the successor must report the aggregate reportable cost of coverage for the individual unless the employer follows the optional procedure in IRS Rev. Proc. 2004-53, and issues one Form W-2 reflecting wages paid to the employee during the calendar year for both the predecessor and the successor employer.  Consistent with the rules applicable to reporting of wages, the successor employer following the optional procedure must include the aggregate reportable cost of coverage provided by both employers on the Form W-2 that it issues, and the predecessor employer must not report the cost of coverage it provides. (Q&A 8)

When an Employer is NOT Required to Issue a Form W-2

If the employer is not already required to issue a W-2, than it does not have to issue one for aggregate reportable cost to an individual. (Q&A 9)

Form W-3

The total of the aggregate reportable costs attributable to an employer's employees is not required to be reported on Form W-3, Transmittal of Wage and Tax Statements. (Q&A 10)

                            Today in History

January 31, 1940 - The very first monthly retirement check was issued by the U.S. Government  to Ida May Fuller of Ludlow, Vermont. Ida May's check, numbered 00-000-001, was in the amount of $22.54. Fuller, a Legal Secretary, retired in November 1939 and lived to be 100 years old (she died in 1975). By the time of her death, Fuller had collected $22,888.92 from Social Security monthly benefits.

She later said about going to the Social Security office, "It wasn't that I expected anything, mind you, but I knew I'd been paying for something called Social Security and I wanted to ask the people in Rutland about it."