16 Aug Highlights of W-2 Reporting Requirement

Source: United Benefit Advisors

• Must include the value of “employer-sponsored group health coverage” on W-2s beginning with the 2012 W-2 (to be issued in January 2013)
• Except that, do not need to include this information if the employer issued fewer than 250 W-2s for the prior calendar year*
  • This means the number of W-2’s issued in 2011 determines whether health care cost reporting is needed on the 2012 W-2s (issued in January 2013)
  • This exemption for smaller employers could change for 2014 and later years
  • Do not need to look at the whole controlled group when counting the number of W-2’s issued
• Reportable “group health coverage” includes:
  • Medical (PPO, HDHP, HMO, etc.)
  • Dental and vision if bundled with medical
  • Onsite medical clinics, EAP and wellness if a COBRA premium is charged
  • Hospital indemnity or specified illness if paid with pre-tax dollars
  • Employer-provided flex credits or flex dollars
• Reportable “group health coverage” does not include:
  • Stand-alone dental and vision* (stand-alone means these benefits are elected separately from medical and have discrete premiums)
  • Life insurance
  • Short- and long-term disability and accident insurance
  • Long-term care
  • Employee salary reduction contributions to health FSAs
  • Hospital indemnity or specified illness paid with after-tax dollars
  • Onsite clinics, EAP and wellness, for which a separate COBRA premium is not charged*
  • Health reimbursement arrangements (HRAs)*
  • Health savings accounts (HSAs)
  • Multi-employer plans*
  • Workers’ compensation
• Must report the total cost of coverage (employer and employee contributions, whether paid pre-tax or after-tax) for all coverage provided to the employee and any covered family members
  • To determine cost, generally use the premium for insured benefits and the COBRA contribution (excluding the 2 percent administrative charge) for self-funded plan
  • If employee adds or discontinues coverage during year, must report based on periods (e.g. months) actually covered
  • If employee changes coverage level during year (e.g., from single to family), the reportable value is the sum of periods of single coverage and periods of family coverage
  • If premium increased or decreased during year, must reflect that in reported total cost
  • If employee terminates during year and elects COBRA, may report value of COBRA or not, as employer chooses (must report for all terminating employees the same way)
  • If any income is imputed (e.g., for domestic partners or dependent children over age 26), include that amount
• Informational reporting only (i.e., reporting does not make benefit taxable)
• Report in Box 12, using code DD
• Do not need to issue a W-2 simply to report value of group medical (so reporting may not be needed for retirees or certain COBRA beneficiaries)
• Do not include on W-3
• Requirement applies to all types of employers — private, government, church, not-for-profit
• Requirement applies to grandfathered plans

Action Needed:

• Determine if requirement applies – did employer issue more than 250 W-2s in 2011?
• If requirement applies:
  • Verify can determine the value of health coverage provided to each employee during 2012
  • Verify payroll system/payroll vendor/W-2 provider is prepared to include this information on the W-2 beginning January 2013
  • Determine how the cost of coverage information will be provided to and accepted by the entity creating W-2s
  • Consider informing employees that this information will be reported on their W-2
    • Opportunity to remind employees of value of the coverage
    • Emphasize that reporting is informational, and does not mean employees are being taxed on the coverage
• Timely issue W-2s with the required information in Box 12

Additional information is available at:

https://www.irs.gov/newsroom/article/0,,id=237894,00.html

https://www.irs.gov/newsroom/article/0,,id=254321,00.html

* – Employer may report this if it wishes to