IRS Clarifies Form W-2 Reporting of Health Insurance Costs

The IRS has issued interim guidance to clarify informational reporting by employers to employees on the cost of employer-provided health insurance. The IRS also updated existing frequently asked questions (FAQs) and posted new FAQs on its website.

Background

The Patient Protection and Affordable Care Act (PPACA) generally requires employers to disclose the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2 for tax years beginning on or after Jan. 1, 2011. To give employers more time to update their payroll systems, the IRS made reporting optional for all employers in Notice 2010-69. Notice 2011-28 provided further relief for small employers.

Interim Guidance

The interim guidance, the IRS explained, is generally applicable to 2012 Forms W-2 (forms that employers will provide to employees in 2013). Employers may rely on Notice 2012-9 if they voluntarily report the cost of coverage on 2011 Forms W-2, the IRS advised. The interim guidance describes employer-sponsored coverage, method of reporting, aggregate cost of coverage and more.

Comment: "Notice 2012-9 adds important clarifications on a number of open issues, including the role of third party sick pay providers, and the proper treatment of excess 105(h) payments and employee assistance programs, which should help plan sponsors and insurers meet these interim 'Code DD' reporting requirements," Elizabeth Dold, principal, The Groom Law Group, Chartered, Washington, D.C., told CCH.

Coverage

Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by an employer excluded from the employee's gross income under Code Sec. 106, or would be excluded if it were employer-provided coverage within the meaning of Code Sec. 106, the IRS explained. Notice 2012-9 describes types of coverage that are excluded from reporting.

Comment: "One of the most important clarifications of the new guidance is that the reporting requirement does not apply to contributions to HRAs, HSAs, MSAs, and FSAs funded solely by employee pre-tax salary contributions on the W-2," McCarthy noted.

Small Employers

For 2012 Forms W-2 (and W-2s issued in later years unless and until further guidance is issued), an employer is not subject to reporting for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year, the IRS explained. Whether an employer is required to file fewer than 250 Forms W-2 for a calendar year is determined based on the Forms W-2 that it would be required to file if it filed Forms W-2 to report all wages paid by the employer and without regard to use of an agent under Code Sec. 3504, the IRS added.

Transition Relief

The IRS cautioned that certain transition relief, such transition relief for some multiemployer plans and others, may be limited by future guidance. However, future guidance will not require reporting for 2012 Forms W-2 for small employers (W-2s provided to employees in 2013).

Disclaimers