As healthcare debates continue to lurk in the halls of Congress and elsewhere, a piece of good news has surfaced – companies issuing fewer than 250 W-2 forms won’t have to report them to the IRS through the end of calendar year 2012.[1] The most recent IRS interim guidance also declares that other employers who had failed to meet previous reporting requirements will not be penalized.
As background, a provision of the Patient Protection and Affordable Care Act (PPACA) requires employers to include the cost of employer-sponsored healthcare coverage on employees’ W-2 forms for all tax years starting on or after January 1, 2011.[2] BenefitMall issued a detailed legislative alert on this issue last fall.[3]
With this new reporting mandate, employers have been concerned about adjusting payroll systems in time to comply with the original deadlines, which now have been extended. In addition, the way that the provision is written, even employers who terminated an employee in January 2011 might have to issue a W-2 with the new information about the cost of health care as early as February or March 2011 if the employee asked for his or her W-2.
Predictably, the IRS received considerable public input on this issue. As a result, the IRS issued an interim notice last November making this requirement optional for 2011 for all employers pending further notice -- after determining that “this relief is appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.”[4]
Current Requirements
Last month, the IRS issued Notice 2011-28 which further delays the mandate for the new reporting requirement another 12 months for employers issuing fewer than 250 W-2s . The extension does not apply to large employers issuing more than 250 W-2s. In addition, the new interim guidance rules clarify that employers do not have to report the health care costs of employees on their W-2s if they left mid-way through the calendar year until the IRS offers more guidance on the matter. [5]
Employers who voluntarily opt-in for this year should include the cost in box 12 of the 2011 W-2 with the code DD. As reported in the most recent IRS release, “In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee.”[6]
To help both employees and employers understand the situation, the IRS offers a Frequently Asked Questions page on their website that highlights the key points of the W-2 issue.[7] A sample W-2 form can be found at: http://www.irs.gov/pub/irs-utl/draft_w-2.pdf. In addition, more information about the IRS interim rules can be found in Notice 2011-28 and the instructions for the 2011 Form W-2 .[8]
The bottom line is this is short-term good news for brokers and many of their employer clients who provide group health benefits since employers will not be forced to include the cost of the employer-sponsored health benefit on the employee W-2s until January 1, 2013. Stayed tuned as the Treasury Department and the IRS anticipate issuing more guidance on the reporting requirement before the end of this year.
This W-2 reporting issue, along with many others in the insurance industry, is fluid and ever-changing. Stay tuned to www.BenefitMall.com and www.HealthcareExchange.com for the latest updates and news, and to keep informed on today’s most important insurance topics.
The views expressed in this blog do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.
[1] See IRS Notice 2011-28 at http://www.irs.gov/pub/irs-drop/n-11-28.pdf .
[2] Section 9002(a) of the new health care reform law provides that employers must disclose the aggregate cost of applicable employer-sponsored health coverage(s) provided to employees on the employee’s Form W-2. The cost of the health benefit is not considered taxable income, but will appear on the employee's W-2 for informational reporting purposes. The coverage costs, whether under an insured or self-insured plan, must be reported under the new requirement.
[3] See http://www.benefitmall.com/RSS/~/media/Files/Legislative%20Updates/20101029LegislativeAlert.ashx
[4] See IRS Notice 2010-69 at http://www.irs.gov/pub/irs-drop/n-10-69.pdf and http://www.irs.gov/newsroom/article/0,,id=228881,00.html.
[5] See Question 9 at http://www.irs.gov/newsroom/article/0,,id=237894,00.html
[6] See IRS FAQs at http://www.irs.gov/newsroom/article/0,,id=237894,00.html.
[7] Idbid.
[8] Idbid.
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