IRS Releases Interim Guidance on W-2 Reporting
Requirements under Health Care Reform
The reporting of aggregate health care costs on the Form W-2 was included as a requirement under health care reform and was scheduled to take effect for the 2011 taxable year. The implementation date was delayed until further guidance was provided.
Last week, the Internal Revenue Service (IRS) released additional guidance, as well as a compliance deadline, for the reporting of aggregate health care costs on employee's Form W-2. Although the guidance is interim and not final, it does include some information that is helpful to employers.
- For most employers, the reporting requirement will apply to W-2s furnished to employees in and after January of 2013.
- Employers filing fewer than 250 W-2s in 2011 will not be required to comply with the reporting requirement before January of 2014, but transitional relief for these employers may stretch beyond 2014.
- The reporting requirement continues to have no effect on the taxability of employees' coverage.
- The required costs will be reported in box 12 of Form W-2 using code DD.
- The reporting requirement applies to the aggregate cost of coverage under a group health plan, whether paid by the employer or the employee. Certain benefits are not included in the reporting requirements. These benefits include:
- Long-term care;
- Amounts contributed to an Archer MSA, Health Savings Account, or flexible spending arrangement;
- Coverage provided under a multiemployer plan (union/Taft-Hartley);
- Coverage provided under a stand-alone dental or vision plan; and
- Coverage provided under a self-insured plan that is not subject to any federal continuation coverage requirements (certain governmental entities, church plans or small employers not subject to federal COBRA)
The notice also addresses additional issues of concern to some employers, including the methods for employees who move among related employers and required reporting for retiree and/or other non-W-2 employees. The notice also provides the rules and permissible methods of calculating the reportable cost under a plan.
If you are an employer in the process of implementing a new payroll system (or intending to implement the reporting required prior to the required date in 2013) you may rely on the IRS's current interim guidance. While it is interim, the guidance states that all future guidance will be prospective and will not apply earlier than January 1 of the calendar year six months after any new guidance is issued, providing employers time to make any adjustment necessary to comply with the new ruling.
A copy of the IRS notice can be found here: http://www.irs.gov/pub/irs-drop/n-11-28.pdf
For more details please contact a Craford team member at your earliest convenience.
The information presented in this document reflects Craford's opinion and interpretation of the law in current form and should not be construed as legal advice. You may wish to obtain your own independent legal counsel before taking any actions which impact your health and welfare benefit plans.