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Reporting Health Care Costs on Form W-2

The Affordable Care Act requires employers to report on Form W-2, for informational purposes only, the cost of the group health benefits provided to each employee. IRS Notice 2011-28 (issued March 29, 2011) provides interim guidance on how this new information reporting obligation is to be implemented. Employers are not required to comply with the new reporting requirement until 2012 (see IRS Notice 2010-69). But the new guidance provides a welcome opportunity for employers to work with health care cost information in 2011 and get ready to comply with the reporting regime when it takes effect.

Notice 2011-28 provides helpful information in the form of 31 specific questions and answers covering the following topics:

  • Employers Subject to the Reporting Requirement;
  • Method of Reporting on the Form W-2;
  • Aggregate Cost of Applicable Employer-Sponsored Coverage;
  • Cost of Coverage Required to be Included in the Aggregate Reportable Cost;
  • Methods of Calculating the Cost of Coverage, and
  • Other Issues Related to Calculating the Cost of Coverage.

Of particular interest to employers will be the following:

Reporting Begins in 2012. The new reporting obligation applies beginning with the calendar year 2012 Forms W-2, which will be furnished to employees in January 2013. Nevertheless, any employer who chooses to report earlier may rely on the guidance. The guidance provides that employers will report the aggregate reportable cost of applicable employer-sponsored coverage on Form W-2 in box 12, using Code DD.

Relief for Small Employers and Others. If an employer files fewer than 250 Forms W-2 for 2011, the employer will not be required to report the cost of health coverage on the 2012 Forms W-2. The relief will apply to future years until the IRS issues subsequent guidance. Transition relief also applies to:

  • Employers issuing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year;
  • Dental and vision plans that are not integrated into another group health plan;
  • Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements (for example, a church plan within the meaning of Code §4980B(d)(3) that is a self-insured group health plan);
  • Health Reimbursement Arrangements ("HRAs"); and
  • Multiemployer plans.

Calculating the Cost of Coverage. The notice permits employers to calculate reportable costs using one of three methods: (i) the COBRA applicable premium method, (ii) the premium charge method, and (iii) the modified COBRA premium method.

In order to comply effectively with any new IRS information reporting requirements, an employer must: (i) learn the technical requirements, (ii) facilitate collaboration between benefits and payroll departments, and (iii) establish a timeline that will provide sufficient time to make any systems changes. The guidance provided in Notice 2011-28 puts all employers in a position to do those three things well before the 2012 compliance date.

Topics: Health and Welfare Plans, Plan Administration