IRS Releases Guidance on Form W-2 Health Coverage Reporting
On March 29, 2011 the Internal Revenue Service (the "IRS") issued Notice 2011-28 (the "Notice") addressing the reporting requirements for employer-sponsored health coverage under the Patient Protection and Affordable Care Act ("PPACA"). As a reminder, under PPACA, effective for calendar years beginning on or after January 1, 2011, employers are required to report the aggregate cost of employer-sponsored health coverage on employees' Forms W-2. Previous IRS guidance made this new reporting requirement optional for all employers for 2011 Forms W-2 (which would generally be given to employees in January 2012).
What employers are subject to the new reporting requirements?
The Notice states that all employers providing employer-sponsored health coverage during a calendar year will be subject to the reporting requirements, including federal, state and local governmental entities, churches and other religious organizations. However, for small employers -- employers required to file fewer than 250 Forms W-2 -- the reporting requirements will remain voluntary until further guidance is issued, but at least through 2012.
Certain types of employer-sponsored health coverage are exempt from the reporting requirements, such as coverage for long-term care, and amounts contributed to a Health Savings Account (HSA). In addition, the Notice states that group health plan coverage provided under a self-insured group health plan that is not subject to any federal continuation coverage requirements (e.g., COBRA) is not subject to the new reporting requirements. For instance, coverage provided under a self-insured church plan is not required to be reported on employees' Forms W-2.
Is employer-sponsored health coverage taxable?
In the Notice, the IRS emphasized that the new reporting requirements are for employees' informational purposes only -- to inform them of the cost of their health care coverage -- and do not cause excludable employer-sponsored health care coverage to become taxable.
What is the aggregate cost of employer-sponsored health coverage and how do employers calculate this amount?
The Notice provides additional guidance regarding how employers should calculate the aggregate cost of employer-sponsored health coverage. For instance, the Notice clarifies that the aggregate reportable cost includes both the portions paid by the employer and by the employee, regardless of whether the employee's contributions were made on a pre-tax or after-tax basis, or whether the cost of coverage is includible in the employee's gross income.
The Notice also provides different alternative calculation methods for reporting the amount of employer-sponsored health coverage in addition to using the COBRA applicable premium method.
When will employers be required to report these amounts?
As mentioned above, it is optional for employers to report the aggregate cost of employer-sponsored coverage on employees Forms W-2 for the 2011 calendar year. Therefore, the Notice is applicable beginning with 2012 Forms W-2 - that is, the forms required for the 2012 calendar year that employers generally are required to furnish to employees in January 2013. (Please remember that certain small employers will remain exempt from such requirements until further guidance is issued.) In addition, employers who voluntarily choose to report the cost of coverage on 2011 Forms W-2 may rely on the guidance in the Notice.
For more information regarding the employer-sponsored health coverage reporting requirements under PPACA, please contact your SGR Executive Compensation and Employee Benefits counsel.