IRS Issues New Guidance on W-2 Reporting of Health Plan Costs

The IRS released new guidance on the requirement that employers provide information to employees on the cost of employer-provided group health plan coverage (Notice 2012-9). The guidance comes in the form of 39 questions and answers. It supersedes Notice 2011-28 and makes changes to requirements that were issued in Notice 2011-28.

The Patient Protection and Affordable Care Act, P.L. 111-148, requires employers to report the “aggregate reportable cost” of “applicable employer-sponsored coverage” under an employer-sponsored group health plan on Form W-2, Wage and Tax Statement. To give employers more time to update their payroll systems, the IRS made this requirement optional for all employers for 2011 Forms W-2 due in 2012 (Notice 2010-69). The first time that employers need to report these amounts is on 2012 Forms W-2 furnished in January 2013. Last year, the IRS provided further relief for small employers filing fewer than 250 Forms W-2 by making the reporting requirement optional for them for 2012 Forms W-2 due in 2013 (Notice 2011-28).

Applicable employer-sponsored coverage means coverage under any group health plan that an employer makes available to the employee and that is excludible from the employee’s gross income under Sec. 106, but it excludes long-term-care coverage, any coverage under a separate dental or vision policy, or any coverage described in Sec. 9832(c)(1) (for example, accident or disability income insurance, supplemental liability insurance, etc.). It also excludes amounts contributed to an Archer medical savings account (MSA) or a health savings account (HSA), or salary reduction contributions to a health flexible spending account (FSA), although special rules apply in determining aggregate reportable cost where the employer offers a health FSA.

The aggregate reportable cost generally includes both the portion of the cost paid by the employer and the portion paid by the employee, regardless of whether the employee paid through pretax or after-tax contributions. The amounts contributed to Archer MSAs and HSAs are excluded. Salary reduction contributions to a health FSA are also excluded, but to the extent the amount of a health FSA exceeds the employee’s salary reduction contributions for the year, it is included in the aggregate reportable cost.

Notice 2012-9 includes the following changes:

• Expands the statutory exemption from reporting for federally recognized Indian tribal governments to include employers that are tribally chartered corporations wholly owned by federally recognized Indian tribal governments, until further guidance is issued.
• Clarifies that the exemption from reporting for employers who are required to file fewer than 250 Forms W-2 applies for 2012 Forms W-2 (and for Forms W-2 for later years unless and until further guidance is issued). An employer who was required to file fewer than 250 Forms W-2 for 2011 will be exempt from the reporting requirement for 2012. If an employer filed fewer than 250 Forms W-2 only because the employer used an agent to file the forms, the exemption does not apply.
• Modifies the requirement for related employers not using a common paymaster so that they are required to report the aggregate reportable cost on one employer’s Form W-2 or allocate the cost among the employers using a reasonable allocation method.
• Clarifies that the cost of coverage does not include amounts includible in income under Sec. 105(h) (excess reimbursements for highly compensated individuals) or under the requirement that 2% S corporation shareholder-employees include their premiums in income.

Notice 2012-9 also provides guidance on a number of issues not addressed in Notice 2011-28. These include how to treat costs of coverage under employee-assistance programs or wellness programs; how to treat costs of coverage under health reimbursement arrangements (HRAs); and how to calculate the reportable amount for coverage when only a portion of the coverage constitutes coverage under a group health plan.