What must you do to comply with the new Form W-2 reporting requirements? If you cannot answer that question, you are not alone. The good news is that you have a little bit of time to bone-up before these requirements become effective. The following set of Q&As is designed to help you better understand the Form W-2 reporting rules.
Who is subject to this reporting requirement? Employers who provide applicable employer-sponsored health coverage for their employees must report the aggregate cost of this coverage in the information reported on Form W-2. This includes private employers; federal, state, and local government entities; and churches and other religious organizations that provide applicable coverage under a group health plan.
How do employers calculate the aggregate cost of employer-sponsored coverage? This is the total cost of coverage under all applicable employer-sponsored coverage provided to the employee. This generally includes both employer and employee contributions towards coverage, regardless of whether the employee paid for the cost through pre-tax or after-tax contributions.
You can calculate the reportable cost using the COBRA applicable premium for that coverage for that period. Alternatively, if your plan is self-insured, you may report the premium charged by the insurer for the employee’s coverage. If you subsidize the cost of coverage, or you determine the cost of coverage for a year by applying the cost of coverage in a prior year, you may calculate the reportable cost using the modified COBRA premium method.
Are there any types of coverage that are excluded from this reporting requirement? You are not required to report costs for the following types of coverage:
- health reimbursement arrangements (HRAs)
- amounts contributed to an Archer MSA
- employee contributions to health flexible spending accounts (FSAs)
- long-term care coverage
- accident or disability coverage
- liability insurance
- workers’ compensation or similar insurance
- standalone vision and dental plans
The IRS also clarified that employers are not required to issue W-2s to former employees who are receiving retiree medical coverage, but who no longer receive any salary or wages.
Where is the aggregate cost reported on Form W-2? You report the aggregate cost in box 12, using code DD.
What is the purpose of this reporting requirement? This reporting is for informational purposes only. The purpose is to provide plan participants with useful information on the cost of their health care coverage.
When must employers begin reporting the aggregate cost of employer-sponsored coverage? For large employers, the reporting obligation begins with 2012 Forms W-2 (issued in 2013). The IRS recently provided additional reporting relief for small employers. In Notice 2011-28, the IRS said that employers issuing fewer than 250 W-2s in 2011 are not required to report the cost of coverage until at least 2014 (i.e., when 2013 W-2s are issued).
What should I do to prepare for this reporting requirement? First, stay tuned. The IRS continues to modify its stance on this reporting requirement. Second, you want to discuss this with your payroll providers to ensure you have a process in place once these reporting requirements become effective.
***For more information on the Form W-2 reporting requirement, see IRS Notice 2011-28 (available here).