W2 Clarification

03/05/2012

As reported in Employee Benefit News, the Affordable Care Act requires employers to report the aggregate cost of employer-sponsored health coverage on employees’ W-2. This provision takes effect for large employers in 2012. The Internal Revenue Service recently issued Notice 2012-9 clarifies the regulation in many areas.

Exemption for small employers. Employers filing fewer than 250 Forms W-2 for the preceding calendar year are not required to report the aggregate cost of coverage. Stand-alone dental and vision plan reporting. The Notice clarifies that the standard for determining whether the cost of coverage under a dental plan or vision plan is included in the aggregate cost is the same standard for determining whether such coverage is an excepted benefit under HIPAA. Stand-alone dental and vision plans may be exempt.

Excess reimbursement for highly-compensated individuals. The reporting requirement does not apply to the cost of coverage includible in income under Section 105(h) of the Internal Revenue Code, or payments or reimbursements of health insurance premiums for a 2% shareholder-employee of an S corporation that is required to include the premium payments in gross income.

Coverage under employee assistance program or similar program. An employer that does not charge a premium for an EAP, wellness program or on-site medical clinic to COBRA-qualifying beneficiaries is not required to include the cost of such coverage in the aggregate reportable cost. For arrangements that are not subject to any federal continuation coverage requirements (such as church plans), the employer is not required to include the cost of such coverage on the Form W-2.

Optional reporting of exempted benefits. Employers may, for convenience, include in the aggregate reportable cost the cost of coverage that is not required to be included (e.g., cost of coverage under a Health Reimbursement Account, provided that certain conditions are satisfied).

Reporting of Cafeteria Plans and HSAs. The amount of the health Flexible Spending Account (FSA) is required to be included in the aggregate reported cost only if the amount of the FSA for the plan year exceeds the salary reduction elected by the employee for the plan year. If the amount of salary reduction elected by an employee equals or exceeds the amount of the FSA for the plan year, the employer does not include the amount of the health FSA for that employee in the aggregate reportable cost. Employers are not required to include the amount contributed to any Health Savings Account (HSA).

Reporting non-applicable employer-sponsored coverage. Employers may use any reasonable method to determine the relative allocation of cost for benefit programs that make available both applicable employer-sponsored coverage (e.g., group health plans) and other coverage (e.g., long-term disability programs).

Employee election changes after year-end. The aggregate reportable cost for a calendar year reported on a Form W-2 may be based on the information available to the employer as of December 31 of the calendar year, without regard to any election or notification made or provided in a subsequent calendar year that has a retroactive effect on a previous year’s coverage.

Payroll periods crossing two taxable years. The Notice provides employers with various options for reporting the aggregate reportable cost for a payroll period that spans two taxable years.

Hospital indemnity/specified disease insurance. Employers are required to include the cost of coverage in the aggregate reportable cost on Form W-2 if the employer makes any contribution to the cost of coverage that is excluded from the employee’s income, or if the employee purchases a policy on a pre-tax basis under a cafeteria plan. However, if the employer provides the opportunity for employees to purchase an independent, non-coordinated fixed indemnity policy and the employee pays the full amount of the premium with after-tax dollars, the cost of coverage provided under that policy is not required to be reported on Form W-2.

Third-party sick pay. The aggregate reportable cost is not required to be reported on a Form W-2 furnished by a third-party sick pay provider. However, a Form W-2 furnished by the employer to an employee must include the aggregate reportable cost, regardless of whether that Form W-2 includes sick pay, or whether a third-party sick pay provider is furnishing a separate Form W-2 to report sick pay.

If you have any questions, please contact your WGA Client Executive or Client Service Manager. Please feel free to direct compliance questions to compliance@wgains.com.