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—Overview—

The W-2 reporting of the cost of health benefits became effective for tax year 2012 and for future years. The benefits are not taxable to the employer or the employee; it is for informational purposes only. The purpose of the reporting requirement is to make employees aware of useful and comparable consumer information on the cost of their healthcare coverage.

—Background—

The W-2 reporting requirement was due to be in effect for tax year 2011. However, to allow employers more time to update their payroll systems, IRS Notice 2011-31 provided interim guidance that delayed the implementation until the 2012 tax year. Therefore, employers are not required to report the cost of health coverage on any W-2 forms prior to January 2013.

Further, employers that issued less than 250 W-2’s for the 2011 tax year were not required to report the cost of their group health plan in Box 12 using code DD for the 2012 tax year. Using that same procedure, employers who in 2012 issued 250 or more W-2’s are required to comply with the reporting for the 2013 tax year, and subsequent tax years.

—IRS Guidance—

IRS Notice 2012-9 provides further interim guidance on the requirement that employers report the value of the health insurance coverage they provide employees on Forms W-2. It replaced previous guidance to clarify certain issues and provide additional information for employers that are subject to the reporting requirement for the 2012 Forms W-2 (generally furnished to employees in January 2013) and those that choose to voluntarily comply.

The requirement continues to be optional for small employers filing fewer than 250 Forms W-2 in the preceding calendar year and until further guidance is issued.

—What to Report—

First let’s address what premiums are to be included: Employer sponsored Medical plans (health insurance); Executive physicals; On-site clinics; EAP’s (Employee assistance plans that provide medical aid); Wellness programs and Flexible Spending Account contributions/costs (for medical, dental, vision, prescription drug and employers flex credit) made by the employer.

Second, the amount to be included is the aggregate reportable cost for the employee as defined in IRC Sec. 4980B (f) (4). The aggregate reportable cost generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax and after-tax contributions. Self-insured health plans would use their COBRA premium as the aggregate reportable cost.

Third, aggregate reportable cost does not include: Long-term care premiums; accident or disability income benefits; specific disease or illness policies; hospital indemnity policies. Contributions made to an HSA or MSA; and salary reduction contributions made to an FSA.

—W-2 must be provided within 30 days—

Did you know that the Affordable Care Act (ACA) created a requirement that an employer must provide a W-2 to a terminated employee within 30 days of a written request?

This new requirement went into effect January 1, 2012 Section 6051(a) of the Internal Revenue Code now requires an employer to provide a W-2 within 30 days after receipt of a written request from a terminated employee.

—For More Information—

If you need additional information, please contact Chrissy Buteas at cbuteas@njbia.org or 609-858-9510.

Updated:  November 3, 2016

 

This information should not be construed as constituting specific legal advice. It is intended to provide general information about this subject and general compliance strategies. For specific legal advice, NJBIA strongly recommends members consult with their attorney.