Is your payroll system ready for the new reporting requirements for group health benefit costs under The Affordable Care Act?  Under IRS guidance, the Form W-2 reporting of group health plan coverage costs will become mandatory this year.  Beginning with the 2012 Forms W-2 due in 2013, employers must report the aggregate value of certain employer-provided health coverage in Box 12 (with Code DD).  For many employers, this will involve substantial groundwork and will generally require that any needed payroll reporting changes be done before year-end.

In general, all employers that provide group health plan coverage are subject to the reporting requirements.  This includes all federal, state and local governmental entities, as well as church and other religious organizations.  However, it excludes Indian tribal governments (and, until further guidance is issued, any tribally chartered wholly-owned corporations).  It is also excludes self-insured health plans that are exempt from COBRA (such as church plans) and multi-employer plan coverage.  In addition, the IRS has established a “small employer” exception under which any employer who was required to file fewer than 250 Forms W-2 for the preceding calendar year need not report group health plan costs for 2012 and later years (until further guidance is issued). 

In general, the required information must only be provided to covered individuals who will otherwise receive a W-2 for the year.  As to content, reporting is required for most employer-sponsored health coverage, including --

  • group medical coverage (including any spousal/dependent coverage);
  • employer contributions to health care flexible spending arrangements (FSAs);
  • employee assistance plans (EAPs), on-site medical clinics and wellness programs (unless the program is not subject to COBRA or a separate COBRA premium is not charged for such coverage); and
  • hospital indemnity insurance paid through employer-paid or employee salary reduction contributions.

However, reporting is generally not required for --

  • dental/vision benefits offered through a separate policy/program (or for which employees must pay an additional premium);
  • health reimbursement arrangements (HRAs);
  • employee contributions to a health care FSA;
  • long term care Insurance;
  • health and medical savings arrangements (HSAs/MSAs); and
  • hospital or other fixed indemnity insurance paid on an after-tax basis.

Note, though, that it is okay to report the cost of excludable items as long as the coverage is employer-provided and the cost is calculated in a permitted manner.

Attached here and here are previous Client Alerts that discuss this reporting requirement in more detail.  In addition, this chart contains Q&As and other information on this subject contained on the IRS website.