In addition to the changes in health plans caused by the Affordable Care Act ("ACA"), the ACA also created new taxes and changed some tax reporting requirements. Beginning in January 2013, employers will be required to report the amount the value of certain health coverage costs on an employee's Form W-2. These items must be reported on the Forms W-2 for the 2012 tax year that are due to be issued by the end of January 2013.
Employers that issue at least 250 Forms W-2 for 2012 are required to implement these requirements. Employers that issue less than 250 Forms W-2 for 2012 may voluntarily report, but are not required to do so. This reporting obligation is on private companies, nonprofit entities, and governmental entities.
The Internal Revenue Service ("IRS") released guidance detailing the types of expenses that must be reported on the Forms W-2, as well as the types that should not be reported and a list of optional reporting items. Mandatory reporting items include the following:
- Cost of major medical coverage (whether insured or self-funded)
- Contributions to a flexible savings account other than employee salary reductions
- Hospital indemnity or specified illness paid through pre-tax salary reduction or by the employer
- Employee Assistance Plan - if the employer charges a COBRA premium
- On-site medical clinics providing employer-sponsored health care coverage - if the employer charges a COBRA premium
- Wellness programs providing employer-sponsored health care coverage - if the employer charges a COBRA premium
- Domestic partner coverage included in gross income
The guidance from the IRS also explains that the following types of expenses should not be reported (this is not a complete list):
- Salary deferral contributions to a flexible savings account
- Contributions to a Health Savings Account or Archer Medical Savings Account (regardless of whether the contributions are from the employee or employer)
- Hospital indemnity or specific illness paid through after-tax salary reduction
- Long-term care
- Payment/reimbursement of health insurance premiums for 2% shareholder-employee if included in gross income.
The IRS decided that amounts paid to a multi-employer health plan, such as a union health and welfare plan, do not need to be reported on the Form W-2; however, reporting of these amounts are optional.