As part of the changes made by health care reform, Section 6051(a)(14) of the Internal Revenue Code requires employers to report on Form W-2 the aggregate cost of employer-sponsored health coverage provided to employees. Though the reporting requirement doesn't apply until employers furnish W-2s for calendar year 2012, employers need to make sure that they have procedures in place now so that they can capture the relevant information during 2012.
- Subject to limited exceptions, all employers providing
employer-sponsored coverage under a group health plan are subject
to the reporting requirement.
- There is a temporary exception for employers that file fewer
than 250 W-2s—these employers are not required to report
the cost of health coverage until the IRS issues further
guidance.
- The new reporting requirement does not affect whether health benefits are taxable.
How is the reportable cost of coverage calculated?
- The reportable cost of employee health coverage is generally
determined by referring to the premium charged. Alternatively,
employers may determine the reportable cost by calculating the
COBRA applicable premium. An employer may use different methods for
calculating the cost under different plans, but the method selected
for a plan must apply for every employee covered under that
plan.
- The reportable cost of coverage includes both the portion paid
by the employer and the portion paid by the employee, including the
cost of coverage for any person who is eligible by relationship to
an employee, even if the employee pays for that coverage with
after-tax dollars.
- The reportable cost of coverage does not include amounts contributed to an Archer MSA or health savings account or amounts that an employee contributes to a health flexible spending arrangement through salary reductions. Employers are also not required to include the cost of limited scope dental or vision benefits that are offered to employees at additional cost.
For what time period should reportable cost of coverage be calculated?
- Reportable cost of coverage must be determined on a calendar
year basis, even if the plan's year is different. This
requirement may present unexpected complications. If, for example,
a plan's rates change during the calendar year, employers will
still be required to report the total cost of coverage for the
calendar year.
- If an employee experiences an event that allows the employee to
make a change in coverage mid-year, the employer must still report
the total cost of coverage for the calendar year.
- If an employee commences or terminates coverage or employment during the calendar year, the employer may use any reasonable method to determine the reportable cost of coverage, provided the selected method is used consistently for all employees that are similarly situated.
Less obvious pitfalls.
- The new reporting requirements specifically require employers to report the cost of coverage for on-site medical clinics. To date, there is no guidance on how to determine these costs, but employers should be aware that they might be required to capture this information.
Practical Tips
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Additional information.
This Update is only intended to provide a general summary of Section 6051(a)(14) and Notice 2011-28. You can read the full text of Notice 2011-28 here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.