The Patient Protection and Affordable Care Act of 2010 (PPACA) added Section 6051(a)(14) to the Internal Revenue Code (the Code), imposing a new W-2 reporting requirement on employers. Under the new rule, employers must report the aggregate cost of "applicable employer-sponsored coverage" on Forms W-2 issued to employees. PPACA initially mandated this new rule for taxable years beginning on or after January 1, 2011. However, this requirement was subsequently made optional for 2011 in an effort to provide employers time to update their payroll systems. The Internal Revenue Service (IRS) now will require W-2s covering the 2012 taxable year to include the cost of coverage information. While the requirement for employers to report does not go into effect until after the 2012 taxable year, employers can begin preparing for this reporting change now.
Applicable employer-sponsored coverage is broadly defined as coverage under a group health plan the employer makes available to the employee that is nontaxable to the employee (or that would be nontaxable if the coverage was employer-provided). Several types of coverage are excluded, including long-term care, a dental or vision plan offered under a separate policy or insurance contract, accident or disability income insurance, liability insurance, workers' compensation insurance or independent coverage only for a specified disease or illness if the employer pays the premiums for the coverage on a post-tax basis. Amounts contributed to any Archer MSA, a health savings account or a salary reduction election to a flexible spending arrangement also are excluded from the reporting requirements.
Recently, in Notice 2011-28, the IRS issued interim guidance to facilitate compliance with the reporting requirements for Forms W-2 for the 2012 taxable year. An employer offering an insured plan may use the premiums charged by the insurer in calculating the aggregate cost of coverage. Otherwise, the calculation is made using either the COBRA applicable premium method or a modified COBRA premium method.
While nearly all employers sponsoring group health plans will be subject to the new reporting requirements, certain transitional relief has been provided. Employers filing less than 250 Forms W-2 for the 2011 taxable year will not be subject to the reporting requirement for the 2012 taxable year. Additionally, until the IRS issues further guidance, which will be enforced prospectively only, multiemployer plans, Health Reimbursement Arrangements, dental and vision plans not integrated into a group health plan and self-insured plans of employers not subject to COBRA continuation coverage or similar requirements are excluded from the aggregate cost calculation.
Employers should speak with their payroll administrator, any other vendors connected to the issuance of W-2 forms and their insurers and/or actuaries to determine the benefits that will be subject to these new reporting requirements, the aggregate cost of the coverage provided to employees and how these new reporting requirements will be met.