After postponing the W-2 reporting requirement for the cost of health coverage until 2012, the IRS has now issued some explanations about how the reporting will be done. IRS Notice 2011-28 contains guidance on W-2 reporting of the cost of health care coverage.
Ok, some of the key components:
If your company issues fewer than 250 Forms W-2 for 2011, then in 2012 your company is relieved from tracking and reporting the value of group health care coverage on Forms W-2.
If you have to report (ie. you have more than 250 W-2s in 2011),
- The amount that must be reported is the “aggregate cost of applicable employer-sponsored coverage.” “Applicable employer-sponsored coverage” is defined as coverage under any group health plan that would be excluded from an employee’s gross income under IRC Section 106, except for: (i) coverage for long-term care; (ii) coverage for on-site medical clinics; (iii) coverage under separate dental or vision insurance (unbundled from group health); or (iv) individual hospital indemnity or disease-specific coverage.
- The aggregate "cost of coverage" is the employer AND the employee portion, whether or not the employee paid for the coverage on pre-tax basis under a cafeteria plan. This also includes the cost of coverage provided to over-age dependents even when the cost of this coverage is added to employees’ taxable wages.
- Amounts excluded from the aggregate cost of coverage include (a) contributions to an Archer MSA, (b) contributions to HSAs, and (c) salary reduction elections under a health flexible spending arrangement (“FSA”). When a health FSA is offered under a Section 125 cafeteria plan, the amount the employer must include in the aggregate reportable cost of coverage on Form W-2 is the amount of the employee’s salary reduction for all qualified benefits (not just the health FSA), plus the amount of any employer flex credits or contributions that the employee elects to apply to the health FSA.
- An employer may choose from among several methods of calculating the reportable cost under a plan: (a) the COBRA premium cost to the employee; (b) the premiums charged for the employee’s coverage; or (c) a modified COBRA premium (where the employer subsidizes COBRA premiums or bases them on premiums calculated in a prior year. .
The notice also provides explanations about how to report heath care costs for employees who terminate mid year, COBRA reporting and, when an employee transitions employment in the course of a year, as well as dealing with plan year concerns and changes in costs mid-year.
Bear in mind that this is interim guidance and could be changed. But it is a good idea to read this notice and be familiar with the proposed requirements to see how it might impact your company.