As your benefits broker, The McCart Group feels that it is important to notify you of upcoming changes to W-2 Reporting Requirements that will affect your organization if you have more than 250 W-2s for 2011 (not number of employees, but number of W-2s).   

The IRS has released additional guidance regarding the W-2 health insurance reporting requirement contained in the Affordable Care Act (ACA). In Notice 2012-9 released January 5th, the IRS clarifies a number of issues addressed in earlier guidance and extends the small employer exemption (for employers filing less than 250 W-2s) from the reporting requirement. Notice 2012-9 clarifies a number of questions and republishes other guidance originally released March 2011 in Notice 2011-28.  The new notice also adds 8 new Q&As not included in the earlier guidance.

 This new IRS Notice includes a total of 39 of the most
frequently asked questions and detailed responses.

Background

The ACA requires employers to report the "aggregate cost" of certain types of employer provided health coverage on an employee's W-2. The reporting requirement does not affect the tax status of the benefits, but was designed to assist in collecting the data necessary to administer various provisions of the ACA.

The "applicable cost" of coverage is the entire cost, including both the employer and employee contributions, to an applicable plan. Self-funded plans are generally allowed to utilize the method used to determine applicable COBRA rates to calculate the aggregate cost of a plan. Applicable cost must be calculated on a monthly basis based on the specific coverage maintained by the employee.

"Applicable employer-sponsored coverage" includes coverage under any group health plan made available to employees which is excludable from the employee's gross income under §106. However, certain benefits (which may be subject to §106) are specifically excluded from the reporting requirement.

Benefits not included in the W-2 reporting requirement:

• Stand-alone dental or vision coverage that meets the HIPAA definition of an "excepted benefit" Generally to be considered an excepted benefit, a dental or vision plan must meet one of the following two requirements:
  • The benefit must be provided under a separate policy, certificate, or contract of insurance; or
  • If the dental or vision coverage is provided under a single policy, certificate, or contract, the benefit must not be an integral part of the group health plan. The participant must have the right to elect not to receive the coverage, and if the participant elects to receive the coverage, they must pay an additional premium or contribution for it.
  • Coverage issued as a supplement to liability insurance
  • Workers' compensation or similar insurance
  • Long-term care insurance
  • Liability insurance, credit-only insurance and automobile medical payment insurance
  • Coverage only for a specified disease or illness, hospital indemnity or other fixed indemnity insurance provided that such coverage is not coordinated with the employer's other health plans

Possible Further Delay for Small Employers

The IRS had previously delayed the reporting requirement for employers who file less than 250 W-2s for the 2011 tax year. Notice 2012-9 takes this a step further and states that "... until further guidance is issued, an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year."

Based on this guidance, the filing requirement for small employers (those who file less than 250 W-2s) is delayed indefinitely until the IRS releases additional guidance.

Other Clarifications and New Information

Notice 2012-9 also includes a number of other clarifications and new guidance.

Updated guidance

• Clarifies that the reporting requirement does not apply to coverage under a Section 125 health flexible spending arrangement (HFSA) if contributions occur only through employee salary reduction elections. However, if the employer makes a contribution to an HFSA, the cost would be reportable.
• Clarifies that the reporting requirement does not apply to payments or reimbursements of health insurance premiums for a 2% shareholder-employee of an S corporation who is required to include the premium payments in gross income.

New guidance

• Provides that employers are not required to include the cost of coverage under an employee assistance program (EAP), wellness program, or on-site medical clinic in the reportable amount if the employer does not charge a premium for these types of coverage provided under COBRA. However, if the employer charges a COBRA premium for any of these types of coverage, the cost of the plan must be included in the aggregate cost for all employees, not just those who have experienced a COBRA event.
• Clarifies that employers may include the cost 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). Some employers may choose to include HRA costs, even though not required, since it may make it administratively easier to calculate an employee's aggregate cost.
• Guidance on some administrative issues such as:
  • How to calculate the reportable amount if an employer is provided notice after December 31 of events that occurred on or before December 31 that affect the prior year's coverage, such as an employee providing an employer notice of a divorce or other change in family status that occurred during a prior calendar year
  • How to calculate the reportable amount where coverage extends over the payroll period including December 31

Action Needed 

Employers who file less than 250 W-2s do not need to worry about this reporting requirement for now, but should continue to monitor the situation in the event that the IRS eventually issues guidance making the rule applicable for small employers sometime in the future.

Employers with more than 250 W-2s for 2011 should review Notice 2012-9 to ensure compliance with the new W-2 reporting requirements, although more guidance from the IRS will be necessary to address the broad range of  administrative challenges that employers encounter with their health plans and related programs.   

Employers may wish to note in communication materials to employees that the reporting is only for informational purposes and "does not cause excludable employer-provided coverage to become taxable," according to the IRS.   

Employers also should ensure appropriate coordination with their recordkeeping systems and payroll administrators to take into account employees who change or drop coverage, who add or remove dependents, or who move from one health plan to another.   

Employers should be prepared to report health plan premium on the 2012 Form W-2 in box 12 using the code 'DD'.  To "prepare," The McCart Group's recommended best practice is for employers to request that their payroll provider set up a memo code on their payroll system such that this health plan premium amount can be "accumulated" per payroll.  At the end of the year, a report can be pulled and/or the payroll vendor will already have the data to populate the W-2.  Otherwise, the employer will be facing a special project situation where the health plan cost for each employee will have to be calculated based on the amount of time they were actually in the plan.   

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If you have questions, first reference the list of Frequently Asked Questions published by the IRS.

If you do not find the answer you need in the IRS Questions and Answers document, please direct your questions (with contact information) to our Director of Administrative Services, Cindy Covington; she will consult with our Compliance Specialist and provide you with a response as soon as possible.  

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

 

As more details of the Patient Protection and Affordable Care Act (PPACA) emerge, The McCart Group will update you on selected provisions that affect employers and employer-sponsored group health plans.