January 13, 2012
Updated Guidance: W-2 Reporting for Health Coverage Costs
~ written by Charlene Bigelow, Client Advocate, Human Capital Practice
The Department of the Treasury/Internal Revenue Service recently released additional guidance on reporting health coverage costs on the W-2, as required to comply with the Patient Protection and Affordable Care Act of 2010 (PPACA).
Prior guidance (reported in our July 2011 Alert) confirmed: (1) a delay in mandatory reporting to first apply to 2012 W-2s, issued in January 2013; (2) who was subject to the reporting requirements, and who was not; (3) what health coverage costs were to be included, and what should be excluded; (4) how to calculate cost, and certain special situations.
The new guidance adds some additional clarification and adjusts the prior guidance. Specifically, the new guidance provides that the cost of coverage need not include the cost of employee assistance plans, wellness programs and on-site medical clinics, where the employer does not charge COBRA beneficiaries any premium for that coverage.
It allows the employer to include other employer-sponsored coverage costs even where they are not subject to W-2 reporting. It clarifies that the cost of hospital indemnity, specified disease or illness coverage will be considered to be employer-sponsored coverage, subject to W-2 reporting, where the employer contributes towards the cost of such coverage or where the coverage is funded with employee pre-tax contributions.
Also, it clarifies that the cost of hospital indemnity, specified disease or illness coverage will not be considered to be employer-sponsored coverage, and will not be subject to cost reporting, where the employer does not contribute towards the cost of such coverage, the cost of coverage is not funded with employee pre-tax contributions, and the coverage is offered on an independent, non-coordinated basis.
And it re-confirms and clarifies that certain employer-sponsored coverage can be excluded, such as the cost of dental and vision coverage if the coverage qualifies as an excepted benefit under HIPAA, and Health Flexible Spending Accounts funded solely with employee pre-tax contributions.
More to Come
This newest guidance will not be the last on this topic. Guidance issued to date currently excludes employers who are not subject to COBRA, governmental employers and small employers (less than 250 employees) from the reporting requirements for 2012. However, Treasury/IRS confirms that: “… Future guidance may limit the availability of some or all of this transition relief …”
The guidance reconfirms that “reporting to employees is for their information only. The reporting is intended to inform them of the cost of their health care coverage and does not cause excludable employer-provided health coverage to become taxable.”
The cost reporting requirements are expected to change as part of the determination and calculation of excise taxes that will apply to high cost health plans (PPACA Section 9001. Excise Tax on High Cost Employer-Sponsored Health Coverage).
Finally, this guidance also confirms that any future guidance that expands the group of employers or otherwise affects the transition relief provided by guidance to date will be: “… prospective only and will not be applicable earlier than January 1 of the calendar year beginning at least six months after the date of issuance of the guidance. …”