IRS Issues New 2012 W-2 Reporting Requirements

For Many Companies, Cost of Health Care Coverage Must Be Included 

By David Wetzler, Benefit Consultant

Many employers will soon be required to report to employees the cost of their group health plan coverage. According to the IRS, the purpose of the reporting is to provide useful and comparable consumer information to employees on the cost of their coverage.

The IRS recently issued guidance (IRS Notice 2012-9) to help with the mandatory reporting that is scheduled to begin with 2012 W-2 forms. 

As the deadline gets closer, however, many employers are having trouble figuring out how they are supposed to calculate the reportable cost.

 Here are some highlights of the latest IRS guidance.

• If an employer issues W-2 forms for less than 250 employees in the preceding year, it is exempt from the W-2 reporting requirement. 
• Corporations which are wholly owned by federally recognized Indian tribal governments are exempt. 
• The aggregate reportable cost generally includes the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for it through pre-tax or after-tax contributions. 
• Employers who are subject to the reporting requirements include federal, state and local government entities, churches and other religious organizations. 
• The aggregate reportable cost will be reported on Form W-2 in box 12, using code DD. 
• For employees who are terminated during the year, an employer may "apply any reasonable method of reporting the cost of coverage provided under a group health plan" for the employee, provided that the method is used consistently for all employees receiving coverage under that plan who leave their jobs during the plan year and continue or otherwise receive coverage after the termination of employment. 
• An employer is not required to report any amount in box 12 using Code DD for a departing employee who has requested to receive a Form W-2 before the end of the calendar year. 
• An employer does not have to issue a W-2 reporting healthcare cost to retirees who are not otherwise required to receive a W-2. 
• An employer is not required to include the cost of coverage under a dental or vision plan if it satisfies the requirements for being excepted benefits under the Health Insurance Portability and Accountability Act (HIPAA). Generally, to be excepted benefits for this purpose, the dental or vision benefits must either:

 1. Be offered under a separate policy, certificate, or contract of insurance (that is, not offered under the same policy, certificate, or contract of insurance under which major medical or other health benefits are offered); or

  2. Participants must have the right not to elect the dental or vision benefits, and if they do elect the dental or vision benefits they must pay an additional premium or contribution for that coverage. 

• The amount of money placed in a healthcare flexible spending account is not required to be included in the reportable costs as long as the amount comes solely through employee contributions from salary. 

• Reporting requirements do not apply to amounts contributed to an Archer Medical Savings Account or to any health savings account of an employee or an employee's spouse. 
• Coverage of employee assistance programs (EAPs) is not required to be reported if no premium is charged. This also applies to wellness programs and onsite medical clinics for COBRA participants. If a premium is charged, then an employer must include the cost in W-2 reporting. 
• Other types of coverage NOT subject to the reporting requirement include: 
• Coverage only for accident, or disability income insurance, or any combination thereof; 
• Coverage issued as a supplement to liability insurance; 
• 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, under which benefits for medical care are secondary or incidental to other insurance benefits. 

These are only some of the rules associated with the new healthcare reporting requirements. For more information, consult with your tax advisor or an SRA Benefits consultant.