W-2 Reporting Requirement – New Guidance Released by the IRS

The Patient Protection and Affordable Care Act of 2010 mandates employers to report the aggregate cost of employer sponsored health care coverage on Form W-2. The IRS (Internal Revenue Service) released (Notice 2011-28) in May 2011 providing guidance to employers on this reporting requirement. The reporting is now required on Forms W-2 for the year 2012.
What is the reporting requirement?
The reporting is informational only, and is designed to determine the value of the coverage received by employees through their employer.
When is the reporting effective?
The requirement to report the aggregate cost of health coverage is January 1, 2013. Employers are not required to provide this information on Forms W-2 prior to January 1, 2013.
What cost must be reported?
The IRS provided four methods that employers may use to calculate the cost of coverage. The same method must be used for every employee receiving the same coverage under the same plan. Different methods may be used for different plans.
  • COBRA Applicable Premium: Aggregate values are based on the COBRA premium rate.
  • Premium Charged: Aggregate values are based on the premium charged by the insurer for the employee’s coverage
  • Modified COBRA Premium: For employers who subsidize COBRA, report the cost of coverage by using a reasonable amount of the COBRA applicable premium.
  • Composite Rate: Report the value of coverages provided by a plan with composite rates, based on the rates for self-only, self-and-spouse and family rate.

What impact does the reporting have on employers?

This will mean increased adminstrative responsibility for employer and third-party vendors who complete company W-2s. It will also help employers – and the government – to track the value of tax free health insurance premiums. The penalties for failure to comply are the same as those applicable to W-2 reporting. They range from $30 to $100 per W-2 and is capped for small businesses.

What impact does the reporting have on employees?

Individuals are not impacted by this information on their W-2. The cost of the benefits reported will not increase their taxable income.

Additional information is provided at the IRS website at www.irs.gov

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