For the 2012 calendar year, most employers must begin reporting the cost of employer-provided group health care coverage on their employees’ Form W-2. The IRS issued guidance earlier this year in IRS Notice 2011-28 on these new reporting obligations, which are briefly described below.
With certain exceptions, private, public and church employers are subject to these new reporting obligations. Excepted employers include those required to file fewer than 250 W-2s for the preceding calendar year (which exemption will continue to apply at least until 2014 or until further guidance provides otherwise), federally recognized Indian tribal governments, or employers that contribute only to a multiemployer welfare plan. Employers subject to the new requirement will need to include the cost of such group health care coverage on the 2012 Form W-2s (required to be furnished to employees in January 2013). The new reporting obligation is meant to inform employees of the cost of their health care coverage; it does not make otherwise excludable employer-provided health care coverage taxable to employees.
An employer should report the aggregate cost of any group health benefits made available to employees but may exclude the cost of certain types of health benefits, which currently include stand-alone dental and/or vision benefits, long-term care benefits, amounts contributed to health savings accounts or flexible spending accounts (with certain exceptions), health reimbursement arrangements, or coverage for accident and/or disability income insurance. While the guidance provides four different methods to calculate the cost to be reported, the cost generally will be equal to the premium amount charged under a fully insured plan, or 100 percent of the COBRA premium rate (i.e., without the 2 percent COBRA administrative fee) for self-funded plans, either of which will include both the employer and employee contributions toward the cost of coverage (regardless of whether they are made on a pre-tax or after-tax basis).
Employers that fail to comply with the new reporting obligation will be subject to a penalty of $200 per Form W-2, capped at $3 million per employer. Employers subject to these new reporting requirements should begin working with their payroll department or providers to set up the infrastructure for calculating the reportable cost of their group health care coverage.