Health Care Reform for Employers: IRS Guidance on New Form W-2 Reporting Requirement

When Congress enacted the Patient Protection and Affordable Care Act in 2010, it added a requirement that employers must report the total cost of an employee’s coverage under an employer-sponsored group health plan on the employee’s Form W-2.

To view this alert in PDF, click W-2 Alert and Memorandum.

Here, in very brief form, is our list of the “Top 9” things you need to know about this new requirement:

(1) The new Form W-2 reporting requirement is for informational purposes only.  It does not change the existing tax treatment of employer-provided coverage.

(2) The new reporting requirement applies to Form W-2s that will be issued for wages that are paid in 2012 and later years.

(3) Employers who filed less than 250 Form W-2s for the previous year are not subject to the new Form W-2 reporting requirement.  This means that most small employers will not have to comply with this requirement. 

(4) An employer is required to report the total cost of its employer-provided coverage, regardless of how the coverage is being paid for.  The fact that the cost of coverage may be divided between the employee and the employer has no impact on what must be reported on the Form W-2.

(5) Coverage under “stand-alone” dental and vision plans is ignored.

(6) Coverage under a “fixed indemnity” policy, such as a policy for cancer insurance or hospital insurance, is ignored if the entire cost is paid by the employee with after-tax dollars.  If any part of the cost is paid by the employer or by the employee with pre-tax dollars, the entire cost of coverage must be reported.

(7) Contributions to Health Savings Accounts and Health Reimbursement Arrangements are also ignored.

(8) Contributions to Health Flexible Spending Accounts (“Health FSAs”) will generally be ignored, unless the employer provides “flex dollars” and the dollar amount available to the employee
under the Health FSA is more than the total amount of the employee’s pre-tax salary reductions for the year.

(9) Although the reporting requirement is for informational purposes only, an employer will be subject to IRS penalties if it fails to comply with this requirement.

Obviously, there is more to this reporting requirement than we can summarize in a one-page list.  A more detailed analysis of the guidance that the IRS has issued regarding the new reporting requirement may be found in the attached Memorandum.  We hope it is helpful to you.

If you have any questions regarding the new Form W-2 reporting requirement or, more generally, regarding the impact of health care reform on employers, please feel free to call Steven Smith, Eric Namee, or Brad Schlozman at (316) 267-2000.