April 15, 2011
On March 29, 2011, the Internal Revenue Service (the “IRS”) issued guidance on reporting the cost of coverage under an employer-sponsored health care plan on participants’ Form W-2s, a new reporting requirement imposed by the Health Care Reform Act.
The New Reporting Requirement. The IRS guidance provides that employers must report the total cost of employer-sponsored health care coverage beginning with the 2012 Form W-2s. The reporting is optional for 2011.
- Which Employers Are Affected? Generally, all employers who provide employer-sponsored health care coverage are subject to the new reporting requirements.
- How Should the Cost of Coverage be Reported? The cost of coverage must be reported in box 12 of the Form W-2. An employer is not required to report amounts on behalf of any individual who would not otherwise receive a Form W-2 for the year, including retirees. An employer is also not required to report the cost of coverage on a Form W-3, which summarizes the wages paid and taxes withheld for all of an employer’s employees.
- What Coverage Must Be Reported? Generally, the total cost of all coverage provided by an employer to an employee under any group health care plan must be reported on the Form W-2. This includes amounts paid by the employer and amounts paid by the employee, regardless of whether the employee’s contributions were made on a pre-tax or after-tax basis.
The following should not be reported:
- Amounts contributed to a multiemployer plan;
- The cost of coverage under a health reimbursement arrangement;
- Amounts contributed to a health savings account or an Archer MSA;
- Salary reductions contributed to a flexible spending arrangement;
- The cost of coverage under a vision or dental plan that is offered separately from an employer’s medical care plan; and
- The cost of coverage under a plan maintained by a government entity primarily for members of the military.
- How is the Cost of Coverage Calculated? An employer may use several different methods to calculate the cost of coverage that must be reported on a Form W-2, including:
- COBRA Applicable Premium Method: The premium that an employer would charge for COBRA during the reportable period, without the 2% administrative charge;
- Premium Charged Method: The premium charged by the insurer for the employee’s coverage during the reportable period; or
- Modified COBRA Premium Method: If the employer subsidizes COBRA coverage, a reasonable estimate of the total COBRA premium for the reportable period.
An employer does not have to use the same method to calculate the cost of coverage for all of its medical care benefit options, but it must apply the same method to all employees within a given medical care benefit option. Additionally, in calculating the cost of coverage, an employer should take into account whether an employee commences, changes, or terminates coverage during a plan year. Regardless of the method used, an employer is not required to report any amounts for an employee who terminates employment during the year and requests a Form W-2 before the end of that calendar year.
Relief for Small Employers. The new guidance issued by the IRS makes the new reporting requirements optional for small employers (those employers filing fewer than 250 Form W-2s) through at least 2012, or until further guidance is issued by the IRS. Small employers will therefore not be subject to the new reporting requirements at least until the 2013 Form W-2s must be issued.
Contact Information. For additional information, please contact Leslie Schneider (770.863.3617), Amy Heppner (404.888.8825) or Kelly Meyers (404.888.8838).
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