Industry Insights

The Patient Protection and Affordable Care Act of 2010 implemented many health care changes. One change is the requirement for employers sponsoring health plans to report the aggregate cost of employer-sponsored coverage on IRS Form W-2. Government entities and churches also are generally required to comply with this new disclosure. The purpose of this disclosure is to provide information to employees about the cost of their health care coverage so they may make comparisons if necessary.

To allow employers to make the necessary changes in their payroll system to accommodate this new requirement, the IRS has issued interim relief via three separate notices. Notice 2010-69 delayed the reporting requirement until 2012 for all employers. Notice 2011-28 provided interim guidance about the requirements and further delayed the reporting requirements for 2012 Forms W-2 (required to be furnished to employees in January 2013) if the employer files fewer than 250 Forms W-2 in the previous calendar year.

Notice 2012-9 clarified whether an employer is required to file fewer than 250 Forms W-2 for a calendar year, noting the decision is based on the Forms W-2 the employer would be required to file, without regard to the use of a payroll agent, as defined in Internal Revenue Code Section 3504. For example, an employer that would have filed only 100 Forms W-2 for the previous year had it not used an agent will not be subject to the reporting requirement for the year, nor will an agent with respect to that employer’s Forms W-2 for the year. In contrast, if the same employer would have filed 300 Forms W-2 for the previous year had it not used an agent, that employer is subject to the reporting requirement for the year, so if an agent is used again, the information will need to be provided to the agent and reported on the Form W-2.

All employers must show the gross value of the employee’s health insurance if the coverage is provided by the employer in a group health plan. This cost typically will include the costs paid by both the employer and employee. The cost does not include amounts the employer might pay for long-term care or coverage for “excepted benefits,” such as disability income insurance, coverage under a qualifying separate dental or vision policy or workers' compensation insurance. Notice 2012-9 includes the full list of other insurance products included in the definition of “excepted benefits.”

Under the transition rules, the reporting requirement also does not apply to either:

• Amounts contributed to any health savings account
• A flexible spending arrangement if the contributions are only employee salary reduction elections

The employer may calculate the proper cost using the Consolidated Omnibus Budget Reconciliation Act (COBRA) applicable premium method, premium charges method or modified COBRA premium method. The notice offers examples explaining the different methods.

Remember, for 2011, this reporting is optional for all employers; it also is optional in 2012 for employers who will file fewer than 250 Forms W-2 in 2011. This is a disclosure requirement only to inform employees about the cost of their health coverage and will not subject any of the amounts to tax. In fact, the amount will not be reported on the W-3. The amount to be disclosed will be included in Box 12 of the Form W-2, using code DD. 

Though the value of health insurance is not required for 2011, you should discuss the new disclosures with your insurance provider to verify the required information will be available for the 2012 year if it is required to be provided to employees in January 2013.

If you have questions regarding these new items, contact your BKD advisor.