I. INTRODUCTION
The Patient Protection and Affordable Care Act, a federal law, requires employers to report the aggregate cost of applicable employer-sponsored coverage under an employer-sponsored Group Health Plan (GHP) on each employee’s W-2. There are no actual tax consequences as a result of the reporting requirement. Rather, the information is intended to assist employees in their attempt to receive the best and most affordable health care coverage possible.
The mandatory report has been delayed to allow time to update payroll systems and will now be required for employers subject to the requirement in the 2012 calendar year to be reported on W-2 forms issued in 2013. The new reporting requirements are based on guidance provided in the Internal Revenue Notice 2012-9, which has amended, restated, and superseded Notice 2011-28. The Notice provides information for employers on reporting the value of the GHP, specifically relating to transitional relief for 2012, how to report, the coverage to be included and how to determine the aggregate cost of the coverage.
II. EMPLOYERS SUBJECT TO REPORTING REQUIREMENT
Employers issuing 250 or more W-2 forms for the calendar year 2012 and who provide an employer-sponsored GHP are subject to the reporting requirements. In general, a GHP is a plan (including a self-insured plan) of, or contributed to by, the employer (including a self-employed person) or employee organization to provide health care to past or present employees and their family members. (Employers that file less than 250 form W-2s in the preceding year are exempt from the reporting requirement unless and until further guidance is issued.) There are exceptions as well as transitional rules for employers that may use a staffing service and those which may have changed ownership during the year.
III. METHOD OF REPORTING ON THE FORM W-2
The aggregate value of employer-sponsored GHP coverage is to be reported in box 12 of the W-2 under code DD. At this time, only the value of GHP benefits is included. Some government plans, namely those for the benefit of members of the military and their family members, are excluded from the reporting requirement. In addition, there are special reporting requirements for Archer Medical Savings Account contributions and Health Savings Account contributions. Reporting of COBRA coverage is also addressed within the Act.
IV. APPLICABLE EMPLOYER-SPONSORED COVERAGE
Employers must report the cost of “all applicable employer-sponsored coverage,” which includes any group health plan coverage that is excludable under Section 106 of the Internal Revenue Code, or that would be excludable if it were employer-sponsored coverage. The cost of coverage required to be reported includes both the employer’s and the employee’s share of the cost of coverage. This also includes all coverage required to be reported as income to the employee.
Applicable employer-sponsored coverage does not include long-term care, accident or disability income, liability insurance, auto and auto medical insurance, or workers’ compensation insurance.
Also, if dental or vision insurance coverage is provided under a separate policy, certificate, or contract of insurance or if participants 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, then such coverage is not reported as it is not part of the GHP.
V. METHODS OF CALCULATING COST OF COVERAGE
The IRS has outlined three methods that an employer may use to calculate the cost of coverage:
a) COBRA Applicable Premium Method – the reportable cost equals the COBRA applicable premium for coverage for the period based on a calculation made in good faith compliance with the requirements of Section 4980B of the Internal Revenue Code.
b) Premium Charged Method – for fully-insured plans, the employer may use the actual premium charged by the insurer to calculate the cost of coverage.
c) Modified COBRA Premium Method – if the employer subsidizes the cost of COBRA then the employer may utilize a good faith estimate of the COBRA applicable premium to determine the reportable cost. Additionally, if the actual COBRA premium charged by the employer for each period in the current year is equal to the premiums charged for each period in a prior year, the employer may use the COBRA applicable premium for the prior year to determine the reportable costs for the current year.
VI. CONCLUSION
The current guidance states that the reporting requirements is for the employee’s information only to inform them of useful and comparable consumer information regarding the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable.
More detailed information regarding the interim rules for this reporting requirement and the additional transition rules for certain employers and with respect to certain types of coverage, as well as a series of Questions and Answers regarding the reporting requirements, can be found in IRS Notice 2012-9, which may be found at http://www.irs.gov/ by searching for "IRS Notice 2012-9."