|Starting in tax year 2011, the Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. To allow employers more time to update their payroll systems, Notice 2010-69, issued last fall, made this requirement optional for all employers in 2011. IRS Notice 2011-28 provided further relief by making this requirement optional for smaller employers in calendar-year 2012. Notice 2011-28 also provides guidance for employers that are subject to this requirement for the 2012 Forms W-2 and those that choose to voluntarily comply with it for either 2011 or 2012.The following frequently asked questions provide information for employers on reporting the value of the health insurance coverage, including information on transitional relief for 2012, how to report, what coverage to include and how to determine the cost of the coverage.
1. What guidance does Notice 2011-28 provide on the informational reporting of the cost of their employer sponsored group health plan coverage to employees?
A. Notice 2011-28 provides interim guidance that generally applies beginning with 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to provide employees in January 2013). Employers are not required to report the cost of health coverage on any forms required to be furnished to employees before January 2013.
2. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?
A. No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.
3. Which employers will be subject to this reporting requirement?
A. Except as provided in the transition relief described in the next Q&A, all employers that provide “applicable employer-sponsored coverage” (see Q&A-5 below) under a group health plan are subject to the reporting requirement. This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments.
Reporting by these employers is not mandatory until the calendar year 2012 Forms W-2 that are required to be provided to employees in January 2013. Additional transition relief is being provided to certain employers and with respect to certain types of coverage, as explained in the next Q&A.
4. What transition relief is being provided by Notice 2011-28? To which employers and types of coverage does it apply and how long does it last?
A. For certain employers and with respect to certain types of coverage listed below, the requirement to report the value of coverage will not apply for the 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to provide employees in January 2013) and will not apply for future calendar years until the IRS publishes guidance giving at least six months of advance notice of any change to the transition relief.
The transition relief applies to the following:
(1) employers filing fewer than 250 Forms W-2 for the previous calendar year (for example, employers filing fewer than 250 2011 Forms W-2 (meaning Form W-2s for the calendar year 2011, which generally are filed with the SSA in early 2012) will not be required to report the cost of coverage on the 2012 Forms W-2 (which generally are filed with the SSA in early 2013);
(2) multiemployer plans;
(3) Health Reimbursement Arrangements;
(4) dental and vision plans that are not integrated into another group health plan;
(5) self-insured plans of employers not subject to COBRA continuation coverage or similar requirements; and
(6) employers furnishing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.
For more information on the additional transition relief for certain employers and with respect to types of coverage, see Section IV of Notice 2011-28.
5. What types of health care coverage must be included in the amount reported on the Form W-2?
A. Employers are required to report the total cost of all “applicable employer-sponsored coverage” provided to an employee. For any employee, “applicable employer-sponsored coverage” is coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee (or that would be non-taxable if the coverage were employer-provided).
Certain types of coverage are excluded from the definition of applicable employer-sponsored coverage and are not included in the amount reported. These types of coverage are:
(1) coverage for long-term care;
(2) coverage for the following HIPAA “excepted benefits”:
- coverage only for accident, or disability income insurance, or any combination of these coverages;
- supplemental liability insurance;
- liability insurance (including general liability insurance and automobile liability insurance);
- workers’ compensation or similar insurance;
- automobile medical payment insurance;
- credit-only insurance; and
- other similar insurance coverage specified in regulations, if the benefits for medical care are secondary or incidental to other insurance benefits.
(3) any coverage under a separate policy, certificate, or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye; and
(4) coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance, if the employee pays the premiums for the coverage on an after-tax basis.
In addition, employers should not include the following amounts in calculating an employee’s total cost of coverage:
(1) the amount contributed to any Archer MSA;
(2) the amount contributed to any Health Savings Account; and
(3) the amount of any salary reduction election to a flexible spending arrangement (FSA).
6. When will employers have to start reporting the value of health care coverage on the Form W-2?
A. No employer is required to report the cost of health coverage on any Forms W-2 required to be provided to employees prior to January 2013. For Forms W-2 filed for the 2011 calendar year (the Forms W-2 required to be provided to employees in January 2012), employers are not required to report the value of health benefits provided, although they may do so voluntarily.
For years after 2011, employers generally are required to report the value of health benefits provided on the Form W-2. Transition relief is available for certain employers and with respect to certain types of coverage, as explained in Q&A-4, above. Reporting for these employers and with respect to these types of coverage is not required until future guidance is provided, and in no event will reporting by these employers and with respect to these types of coverage be required on any Forms W-2 required to be furnished to employees before January 2014.
7. What amount should the employer report on the Form W-2 for health coverage? The amount the employer paid? The amount the employee paid? Or both?
A. In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions. See Notice 2011-28 for more detail on the interim rules that apply to reporting contributions to a health FSA.
8. Where on the Form W-2 should the employer report the cost of these health care benefits?
A. The cost of these health care benefits will be reported in Box 12 of the Form W-2, with Code DD to identify the amount.
9. If an employee leaves an employer during the calendar year, the employer may be required to issue a Form W-2 within 30 days if the employee requests. What amount of health benefits should be reported on the Form W-2 for employees that leave during the year?
A. Under the transition rules that apply until future guidance (see Q&A-4 above), if an employee requests the Form W-2 before the end of the calendar year, the employer is not required to report any amount of health benefits on the Form W-2.
Under the interim rules, if the Form W-2 is issued after the end of the calendar year, the employer may use any reasonable method to calculate the cost of coverage, so long as that method is applied consistently.
10. Will employers now be required to issue a Form W-2 to retirees or other former employees to whom the employer does not normally issue a Form W-2?
11. Where can I get more information about the employer’s requirement to report the aggregate cost of an employee’s health care benefits on the Form W-2?
A. Detailed information about the interim rules for this reporting requirement and the additional transition rules for certain employers and with respect to certain types of coverage can be found in Notice 2011-28 and the instructions for the 2011 Form W-2 .