Health Care Reform requires certain large employers to report the aggregate cost of employer-sponsored health coverage on each employee’s Form W-2 (issued in January 2013 for the 2012 tax year). The information reported provides employees with comparable information on the cost of their health care coverage, but does not affect the amount included in their taxable income. Employers will need to begin gathering the data immediately, which may require a modification to their payroll practices. The Internal Revenue Service issued Notice 2012-9 restating and amending Notice 2011-28 providing interim guidance on the reporting requirement. The following is a summary of the interim guidance:
Employers Required to Report
Generally, all employers that provide employer-sponsored health coverage (including governmental entities and religious organizations) are subject to the reporting requirements. However, the following employers are not subject to the reporting requirements:
- Small Employers. Employers that file fewer than 250 Forms W-2 for the preceding calendar year, including the Forms W-2 filed by the employer’s agent under Code section 3504.
- Tribal Governments and Employers. Federally recognized Indian tribal governments and employers that are tribally charted corporations wholly-owned by a Federally recognized Indian tribal government.
Health Coverage to Report
Generally, the reporting requirement applies to any employer-sponsored health coverage under an insured or self-insured health plan. However, the following types of employer-sponsored coverage are not subject to the reporting requirements:
- Stand-alone dental or vision coverage.
- Coverage under a self-insured group health plan that is not subject to COBRA, such as a self-insured church plan.
- Coverage under a Health Reimbursement Arrangement (however, an employer may include it if desired).
- Amount contribute to an Archer Medical Savings Account (“Archer MSA”) or a Health Savings Account (“HSA”). This amount is already reported on Form W-2 in box 12, using code R for Archer MSAs and code W for HSAs.
- Long-term care coverage, accident and disability coverage, liability insurance and worker’s compensation insurance.
- Coverage for on-site medical clinics, employee assistance programs and wellness programs to the extent that the coverage is not a group health plan and any COBRA premiums do not include a charge for these programs.
- Coverage for a specific disease or illness and hospital indemnity or other fixed indemnity insurance where such coverage is funded by the employee on an after-tax basis.
- Coverage under a multiemployer plan.
- Excess reimbursements of highly compensated individuals that are included in taxable income because a self-funded plan violates the nondiscrimination rules under Code 105(h).
- 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.
- Coverage under a governmental plan that provides coverage primarily for members of the military and their families.
Amount to Report
Employers must report the aggregate reportable cost of the employer-sponsored health coverage on Form W-2 in box 12, using code DD. This includes both employer and employee contributions to such coverage through pre-tax or after-tax contributions for all individuals covered (employee, spouse, and dependents). The reportable cost of the employer-sponsored health coverage is for the calendar year (without regard to the policy or plan year) and may be based on the information available to the employer as of December 31. The cost does not need to be adjusted for later elections or notifications that retroactively affect coverage during the prior year. For an employee who terminated employment during the calendar year and continues to receive coverage after the termination of employment, the employer may on a consistent basis choose to include or exclude the cost of coverage after the termination of employment.
The following three methods may be used for calculating the cost. Employers are not required to use the same method for every plan, but must use the same method for every employee covered under a plan.
- Premium charged method. Employers who have fully-insured group health plans may use the premium charged by the insurer for that employee’s coverage (i.e., single-only coverage or family coverage, as applicable to the employee) as the reportable cost for the coverage period.
- COBRA applicable premium method. The reportable cost equals the COBRA applicable premium for the coverage period (without the 2% administrative fee).
- Modified COBRA premium method. Employers that subsidize the cost of COBRA or charge a COBRA premium equal to the applicable premium from a prior year may use the prior year’s premium or a good faith estimate of the full COBRA premium for any subsidized premiums.
This information provided above about a new development of the law is intended for general informational purposes only. It should not be construed as legal advice or legal opinion on any specific facts or circumstances and you are urged to consult a Lindquist & Vennum PLLP attorney or one of your own choosing concerning your situation and specific legal questions you have.