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Health Reform: W-2 Reporting on Cost of Coverage

April 1, 2011

Cox Smith Employee Benefits E-Alert

The IRS has issued new guidance on the W-2 reporting requirement under health care reform, providing details on calculation of the cost of coverage and offering reporting relief for some employers and certain plans.

Health reform legislation enacted in March of 2010 required employers to report the cost of employer-sponsored health coverage on Forms W-2 issued for 2011 and beyond. Last October, the IRS delayed the reporting requirement by one year, to begin with 2012 Forms W-2 furnished in January of 2013. (Employers may, but need not, report the cost of employer-sponsored health coverage for Forms W-2 for the 2011 calendar year.)

Requirement Delayed for Small Employers.

Now, the reporting requirement has been delayed another year, for small employers only. Specifically, if an employer files fewer than 250 Forms W-2 for the 2011 calendar year (furnished to employees in January of 2012), that employer is not required to report the cost of employer-sponsored health coverage for 2012. The reporting requirement will apply in 2013 and beyond. Absent further guidance, an employer that files 250 or more Forms W-2 for the 2011 calendar year must report the cost of employer-sponsored health coverage beginning with 2012.

Reporting Cost of Coverage

For 2012, large employers (and for 2013, small employers) must report the cost of "employer-sponsored health coverage" using code DD in box 12 of Form W-2. Employers need not report the cost of coverage of individuals for whom the employer would not otherwise furnish a Form W-2 (such as independent contractors).

"Employer-sponsored health coverage" generally means coverage under any group health plan—whether fully insured or self-funded—that is excludible from the employee’s gross income. Notably, the IRS clarified that amounts contributed to Archer MSAs, HSAs, and HRAs, and salary deferrals to Health FSAs are not required to be reported. Furthermore, the cost of coverage under a stand-alone dental plan or stand-alone vision plan need not be reported.

Employers are not required to report the cost of self-insured group health plans that are not subject to COBRA or Public Health Services Act requirements.

The cost of coverage includes both the portion paid by the employer and the portion paid by the employee (whether on a pre-tax or post-tax basis). Employers can calculate the cost of coverage in one of three methods:

  1. By using the COBRA applicable premium;
  2. By using a good-faith estimate of the COBRA applicable premium, if the employer subsidizes the premium charged to COBRA beneficiaries; or
  3. In the case of a fully-insured plan, by using the premium charged by the insurer.

The reportable cost of coverage must reflect any mid-year change in the cost of an employee’s coverage (whether due to the employee changing coverage options or due to a premium change).

Finally, the IRS emphasized repeatedly that the W-2 reporting requirement does not affect the taxability of employer-provided health coverage, but is intended only to inform employees as to the cost of their health care coverage.

Please contact any of the employee benefits lawyers listed if you would like to discuss the details of this guidance or any other health care reform changes in more detail.

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