When the Patient Protection & Affordable Care Act (PPACA) was passed in March 2010, a number of mandates became law. While some of these mandates have been widely discussed – such as the employer requirement to provide affordable health coverage and the requirement for individuals to buy health insurance by 2014 – other directives are not as well known. One of the lesser known mandates is the act’s new Form W-2 reporting requirement. Effective for 2012 W-2s, employers must report the cost of coverage under an employer-sponsored group health plan.
More specifically, employers must report the total cost of all “applicable employer sponsored coverage” provided to an employee. Applicable employer sponsored coverage is defined as “coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee.” In other words, employers must report the costs of major medical insurance and similar plans on employees’ W-2s. The amount reported will be comprised of both employer and employee contributions. Employee contribution amounts must include both pre-tax and after-tax contributions.
The coverage costs of the following types of plans must be indicated on 2012 Form W-2s in box 12 with a code “DD” designation:
- Medical plans;
- Prescription drug plans;
- Executive physicals;
- On-site clinics, if they provide more than minimal care;
- Medicare supplemental policies;
- Employee assistance programs; and
- Dental and vision plans, unless they are “stand-alone” plans.
It is important to note that the costs of coverage under health flexible spending accounts, health savings accounts, and long-term care insurance are excluded from the reporting requirement.
In interim guidance, the IRS remarked that this additional reporting is for informational purposes only. The PPACA does not cause any previously excludable employer-provided health coverage to become taxable. According to the service, the main purpose of this legislation is to notify employees about the true cost of their healthcare coverage.
If you are a business owner it will be important to track this cost of coverage data for the entire year. If your business uses a payroll company you may consider discussing this new reporting requirement with your payroll provider in order to be aware of any additional information the provider will need.
Below is a quick reference chart provided for your convenience that contains the new requirements for 2012 and beyond. Items listed as “optional” may be changed by future IRS rules; however, any such change will not be applicable until the tax year beginning at least six months after the date the guidance is issued.
|Coverage Type||Report on form W-2||Do Not Report on Form W-2||Optional|
|Dental or vision plan not integrated into another medical or health plan||X|
|Dental or vision plan which gives the choice of declining or electing and paying an additional premium||X|
|Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts||X|
|Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits||X|
|Health Reimbursement Arrangement (HRA) contributions||X|
|Health Savings Arrangement (HSA) contributions (employer or employee)||X|
|Archer Medical Savings Account (Archer MSA) contributions (employer or employee)||X|
|Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis||X|
|Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer||X|
|Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|On-site medical clinics providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|Wellness programs providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|Domestic partner coverage included in gross income||X|
|Military plan provided by a governmental entity||X|
|Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government||X|
|Self-funded plans not subject to Federal COBRA||X|
|Accident or disability income||X|
|Supplemental liability insurance||X|
|Automobile medical payment insurance||X|
|Excess reimbursement to highly compensated individual, included in gross income||X|
|Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income||X|
|Other Situations||Report||Do Not Report||Optional|
|Employers required to file fewer than 250 Forms W-2 for the preceding calendar year||X|
|Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year||X|
|Forms W-2 provided by third-party sick-pay provider to employees of other employers||X|
Please contact your Katz, Sapper & Miller tax advisor if you have any questions about this new reporting requirement.