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March 30, 2011

HRB 32 - IRS Issues Interim Guidance on W-2 Reporting

Released March 30, 2011I Download as a PDF

March 30, 2011 --  One of the provisions of the Patient Protection and Affordable Care Act (PPACA) requires employers to report the aggregate cost of health coverage on the employee’s Form W-2.  This reporting requirement is informational-only, and does not create a taxable event.  This provision was to be applicable for the 2011 reporting year; generally, for the W-2 required in January, 2012.  In IRS Notice 2010-69 issued in October, 2010, the requirement was made voluntary for 2011 (see IRS delays W-2 reporting of employer health coverage from the CBIZ Health Reform Bulletin, Agencies Issue PPACA Clarifications).

On March 29, 2011, the IRS issued interim guidance (IRS Notice 2011-28) explaining this reporting requirement.  This guidance will be applicable for the 2012 reporting year, generally, for the W-2 required to be issued in January, 2013; and, may be relied upon by those choosing to voluntarily comply with the reporting requirement. 

What employers have to comply?

This guidance provides further relief for certain employers.  Specifically, employers required to file fewer than 250 Form W-2s are relieved from compliance until the 2013 reporting year; generally, the W-2s would be required to be issued in January, 2014. 

The guidance clarifies that the reporting requirement does not currently apply to:

  • Self-funded plans exempt from federal COBRA;
  • Federal or state government-sponsored plans maintained primarily for military members and their families; or
  • Plans sponsored by Federally-recognized Indian tribal governments.

Of specific importance to employers, the reporting requirement only applies if the employer is otherwise obligated to provide a W-2.  This has particular relevance to an employer who provides post-employment health coverage, such as retiree health coverage.  In this instance, the aggregate cost of the retiree or other post-employment health coverage would only have to be reported if the employer is otherwise obligated to provide a W-2. 

What plans are subject to the W-2 requirement?

Generally, the reporting requirement applies to employer-provided health plans.  It does not apply to:

  • Long term care plans;
  • On-site medical clinics;
  • Stand-alone, non-integrated dental or vision plans;
  • Contributions to health savings accounts, Archer medical savings accounts, health reimbursement arrangements, or salary reduction contributions to flexible medical spending accounts; or
  • Multiemployer plans.

What costs must be reported?

The costs to be reported include both the employer and employee share of the premium, without regard to whether the premium is paid with salary reduction dollars through a cafeteria plan (IRC §125 plan).  However, as noted above, salary reduction contributions to a flexible medical spending account need not be reported. The aggregate cost of health coverage includes the cost of coverage for non-dependents. 

The aggregate cost can be calculated in one of the following ways:

  1. If the plan is insured, the insurance premium can be used.
  2. Using the method for calculating COBRA premium, excluding the 2% administrative fee. 
  3. Using a modified COBRA premium calculation when an employer charges less than the full COBRA rate; the amount to be reported on the W-2 is a good faith determination of the COBRA rate.

This Notice, together with past guidance, should give employers ample time to work with their payroll and health plan providers to ensure that the required disclosures can be made at the appropriate time.

 

 

About the Author:  Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law.  Ms. McLeese is based in the CBIZ Leawood, Kansas office.

 

 

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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