HR & Benefit News

Updated Guidance Clarifies Issues Related to Reporting Employer-Sponsored Health Coverage on Form W-2

  

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The Internal Revenue Service (IRS) has issued new interim guidance, updating and replacing information previously released, on the requirement under the Affordable Care Act that employers report the value of the health insurance coverage they provide employees on each employee's annual Form W-2.
 
Background
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on employees' Forms W-2. The purpose of the new reporting is to inform employees of the cost of their health coverage. Employer-provided health coverage continues to be excludable from an employee's income, and the amount reported is not taxable for federal income tax purposes.*

To give employers more time to update their payroll systems, the IRS made this requirement optional for all employers for the 2011 Forms W-2 (generally furnished to employees in January 2012).

Previous guidance provided further relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them at least for 2012 (i.e., for 2012 Forms W-2 that generally would be furnished to employees in January 2013), and continuing this optional treatment for smaller employers until further guidance is issued. That guidance also included information about how to report for those employers subject to the requirement for 2012.
 
New Guidance Updates Information on How to Report, Coverage to Include, and Determining Costs of Coverage

Using the same question-and-answer format, Notice 2012-9 restates and amends the previous guidance to clarify certain issues and provide additional information for employers that are subject to the reporting requirement for the 2012 Forms W-2 and those that choose to voluntarily comply. Among other things, the new guidance:

• Clarifies the application of the interim relief from the reporting requirement for employers filing fewer than 250 Forms W-2 for the preceding calendar year (Q&A-3);
• Adds a new example that demonstrates that the reporting requirement does not apply to coverage under a health flexible spending arrangement (FSA) if contributions occur only through employee salary reduction elections (Q&A-19);
• 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 with respect to that type of coverage provided under COBRA to a qualifying beneficiary (Q&A-32);
• 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) (Q&A-33);
• Clarifies how to calculate the reportable amount if an employer is provided notice after December 31 of a calendar year of events that occurred on or before December 31 of a calendar year 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 (Q&A-35); and
• Clarifies how to calculate the reportable amount where coverage extends over the payroll period including December 31 (Q&A-36).

*Caution: Employers in certain states may be required to report the cost of employer-provided health insurance coverage for adult children on the employee's Form W-2 for 2011. This is because the income tax laws of some states have not been changed to conform with the federal rules, so expanded coverage provided for adult children under the Affordable Care Act may be treated as taxable income to the employee for state income tax purposes. Employers should contact their state revenue department for reporting requirements related to coverage for adult children.
 
Additional Information
Please note that this guidance may be modified during the year.  Benefits & Incentives Group will continue to keep you up-to-date and informed.  If you have questions, please contact your Benefits & Incentives Group representative, or to read the new guidance in its entirety, see Notice 2012-9. You can also view the Frequently Asked Questions regarding this requirement from the IRS. For more on the Affordable Care Act, log-on to the Client Resource Center and visit the HR & Benefits Library.