W-2 Health Insurance Reporting Detailed
The IRS released guidance (Notice 2011-28) in question-and-answer format on the new requirement that employers include the “aggregate reportable cost” of employer-sponsored group health insurance on Form W-2, Wage and Tax Statement.
The requirement was added for tax years beginning after 2010 by the Patient Protection and Affordable Care Act (PL 111-148) under IRC § 6051(a)(14). It is intended to provide employees with “useful and comparable consumer information” on the cost of their health care coverage, with no resulting effect on its tax treatment. In October 2010, with Notice 2010-69, the IRS made the provision optional for calendar 2011. In other words, employers may report the cost for 2011 but are not required to do so until they issue W-2s in January 2013 for calendar 2012.
Interim guidance in Notice 2011-28 released in late March includes additional transition relief for certain employers and types of health coverage. Notably, employers are not required to report costs for any calendar year if they were required to file fewer than 250 Forms W-2 for the preceding calendar year. For example, employers that issue fewer than 250 Forms W-2 in January 2012 for 2011 will not be required to report costs on any W-2s they issue in January 2013 for 2012 (Q&A 3 of the notice).
Other points covered by the guidance include:
- All employers that provide applicable employer-sponsored coverage under a group health plan are generally subject to the requirement, including federal, state and local governments, churches and other tax-exempt employers. However, reporting is not required by federally recognized Indian tribal governments or for coverage provided by federal or state governments (or their political subdivisions or agencies or instrumentalities) under a plan maintained primarily for members of the military or their families (Q&A’s 3 and 22).
- The amount is reported in Box 12 of the form, using the code “DD” (Q&A 5).
- The aggregate reportable cost includes portions paid by both the employer and the employee. Generally, it is for coverage that is excludable from the employee’s gross income. However, it includes costs includible in the employee’s gross income because they are for coverage of persons other than the employee, employee’s spouse, dependents and adult children under age 27 (Q&A’s 12–15).
- For employees who terminate employment during a calendar year, employers may either include or exclude the cost of post-employment continuation coverage during the year, as long as the method used for such employees is reasonable and consistent (Q&A 6).
- The aggregate reportable cost of care does not include cost of coverage under a free-standing dental plan or vision plan that is not integrated intoa group plan covering other health care. It also does not include contributions to Archer MSAs, health savings accounts or health reimbursement accounts. It does not include salary reduction amounts elected under a health flexible spending arrangement (FSA). However, it does include employer matching amounts in a health FSA (Q&A’s 16–20).
- The cost of coverage under a multiemployer plan is not reported, nor is coverage under a self-insured group plan that is not subject to any federal continuation coverage requirements (Q&A’s 17 and 21).
The guidance also provides further details on types of coverage subject to reporting and prescribes methods of calculating the cost of coverage.
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