In this article, we continue summarizing recent government guidance/announcements with respect to the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act).
The Affordable Care Act requires informational reporting of the aggregate cost of employer-sponsored group health plan coverage, which is to be included on Form W-2 and which was originally scheduled to take effect in 2011. IRS Notice 2010-69 provided transition relief until 2012 (for Forms W-2 issued by January 31, 2013) although employers could voluntarily elect to include the information in 2011. The IRS recently issued Notice 2011-28, which provides further relief as follows:
- W-2 reporting of the aggregate cost of employer-provided health plan coverage is not required until 2012 for employers that issue 250 or more Forms W-2.
- Employers issuing fewer than 250 Forms W-2 do not have to report the aggregate cost of employer-provided health care until further guidance is issued.
- Aggregate reportable cost generally includes the portion of cost borne by the employer and by the employee, regardless of whether it is on a pre-tax or post-tax basis (exclusions for Flexible Spending Accounts), as well as cost for any person covered under the plan because of a relationship to the employee including any portion includible in the employee’s gross income.
- Reportable cost must be determined on a calendar year basis and reported as Code DD in Box 12 of Form W-2.
- Plan sponsors must use a reasonable method for reporting aggregate cost for terminated employees. Aggregate cost is not required for employees who request a Form W-2 before the end of the calendar year in which they terminate.
- Total aggregate cost is not required to be reported on Form W-2.
Unlike IRS Notice 2010-69, Notice 2011- 28 does not provide relief from any reporting penalties.
What Is Not Included in Reportable Cost:
- Amounts contributed to an Archer MSA;
- Amounts contributed to an HSA;
- Amounts contributed to HRA;
- Salary reduction contributions to an FSA, subject to certain rules;
- Coverage for a dental or vision plan that is not integrated into a group health plan;
- Coverage only for accident or disability income insurance, or any combination thereof;
- Coverage issued as a supplement to liability insurance;
- Liability insurance, including general liability insurance and automobile liability insurance;
- Workers’ compensation or similar insurance;
- Automobile medical payment insurance;
- Credit-only insurance; and
- Other similar insurance coverage under which benefits for medical care are secondary or incidental to other insurance benefits.
Also excluded from reportable cost are coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance, provided that such coverage is offered as independent, noncoordinated benefits.
Calculating the Cost of Coverage
Notice 2011-28 describes four methods for calculating cost of coverage: (1) COBRA premium, (2) premium charged method, (3) modified COBRA premium, and (4) composite rate; and provides several examples.
The Q&A section of Notice 2011-28 also provides guidance where the employee commences, changes or terminates during the year and when excess reimbursements under Internal Revenue Code § 105(h) are included in the gross income of a highly compensated individual.
What Should Plan Sponsors Do Now?
Plan sponsors need to be aware of the changes that may be required in W-2 reporting. This may be as simple as capturing the necessary data elements and transmitting the information to an outside party, if Form W-2 preparation is outsourced. Additionally, plan sponsors must decide how they calculate cost. It is not too early to begin this discussion with your attorney, consultant and/or management.