In this ALERT we continue summarizing recent government guidance/announcements.
Form W-2 Reporting
The Affordable Care Act required informational reporting regarding the aggregate cost of employer sponsored group health plan coverage to be included in W-2s and was originally scheduled to be effective with the 2011 calendar year. Notice 2010-69 provided transition relief until 2012 although employers could voluntarily elect to include the information in 2011. The IRS has recently issued Notice 2011-28 which provides further relief as follows:
- W-2 reporting of the aggregate cost of employer provided health plan coverage not required until 2012 for employers who issue 250 or more W-2’s
- Employers issuing less than 250 W-2’s do not have to report the aggregate cost of employer provided health care until further guidance is issued.
- Aggregate reportable cost (“reportable cost”) generally includes the portion of cost by the employer and by the employee regardless of whether it is on a pre-tax or post tax basis (exclusions for FSAs) as well as cost for any person covered under the plan because of a relationship to the employee including any portion includible in the employee’s gross income.
- Reportable cost must be determined on a calendar year basis and reported as Code DD in Box 12.
- Plan sponsors must use a reasonable method for reporting aggregate cost for terminated employees; aggregate cost is not required for employees who request a W-2 before the end of the calendar year in which they terminate.
- Total aggregate cost is not required to be reported on Form W-3.
Unlike Notice 2010-69, this interim Notice does not provide relief from any reporting penalties.
What’s not included in reportable cost
- Amounts contributed to an Archer MSA
- Amounts contributed to an HSA
- Amounts contributed to an HRA
- Salary reduction contributions to a flexible spending account subject to certain rules (see examples for when contributions to an FSA would be included)
- Coverage for a dental or vision plan that is not integrated into a group health plan.
- Coverage only for accident, or disability income insurance, or any combination thereof;
- Coverage issued as a supplement to liability insurance;
- Liability insurance, including general liability insurance and automobile liability insurance;
- Workers’ compensation or similar insurance;
- Automobile medical payment insurance;
- Credit-only insurance;
- Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.
Also excluded are the types of coverage described in §9832(c)(3) i.e.,
- coverage only for a specified disease or illness; and
- hospital indemnity or other fixed indemnity insurance,
provided that such coverage is offered as independent, noncoordinated benefits.
Calculating the Cost of Coverage
Q&A 24 through 27 of the Notice describe the methods for calculating cost of coverage and provide examples.
There are four methods to calculate cost of coverage:
- COBRA premium (Q&A 25)
- Premium charged method (Q&A 26)
- Modified COBRA premium (Q&A 27)
- Composite rate (Q&A 28)
The Q&As also provide guidance where:
- The employee commences, changes or terminates during the year
- Excess reimbursements under §105(h) are included in the gross income of an highly compensated individual
Comments requested
The IRS is requesting comments on all aspects of the interim guidance provided in the Notice as well as:
- How future guidance could further reduce the burden of compliance with the reporting requirements while still providing useful information to employees
- Challenges employers may face in implementing the requirements for 2012 W-2s
- Issues with respect to employers contributing to multiemployer plans
- Issues that would arise in requiring employers who file less than 250 W-2s
Comments must be submitted by 90 days from the date the interim guidance is published in the Federal Register.
What should Plan Sponsors do now?
- Make sure your HRIS department is aware of the changes that may be required (capturing data elements and transmitting if W-2 preparation is outsourced)
- Decide how you will calculate cost; discuss with your consultant and management
- Submit comments; alternatively, talk to your consultant and or attorney to ensure your concerns are included in their comments
You may want to check our new blog periodically for quick updates on compliance issues.
Note: all links are active as of the date of issuance of this ErisaALERT.
Disclaimer: This material is for the sole purpose of providing general information and does not under any circumstances constitute legal advice and should not be used as a substitute for legal advice. You should seek the advice of counsel when applying the requirements to your plan. For more information on this ErisaALERT contact us by phone at 610-524-5351 and ask for Mary Andersen or 973-994-7539 and ask for Theresa Borzelli.
