IRS issues
more guidance on
health benefit
W-2 reporting
Beginning with
2012 W-2 forms,
you must report
the value of
employees’
health benefits
(Box 12, with
Code DD).
Reporting on
Form W-3 isn’t
necessary.
Last year,
the IRS provided
transition
relief that
excused
employers filing
fewer than 250
W-2s during the
preceding year
from reporting.
That relief,
however, didn’t
address a
variety of other
sticky reporting
situations.
Good news:
Under new
guidance, W-2
reporting is
excused in more
instances.
(Notice 2012-9,
IRB 2012-4)
What’s new
Under the
2011 transition
relief, no W-2
reporting is
necessary for
terminating
employees who
request early
W-2s, retirees
who receive
health benefits
but no other
reportable
compensation or
taxes,
self-insured
plans that
aren’t subject
to COBRA and
multi-employer
plans.
Until further
guidance is
issued, the IRS
is expanding
this
no-reporting
rule to the
following:
- For discriminatory self-insured plans, the cost of excess reimbursements that are included in highly compensated employees’ gross income (i.e., the excess reimbursement is subtracted from the reportable amount).
- Payments or reimbursements of health insurance premiums that are taken into income by 2% S corporation shareholder-employees.
- W-2s provided by third-party payers of sick pay.
- Dental and vision benefits need not be reported if they are excepted benefits under the Health Insurance Portability and Accountability Act (HIPAA). Under HIPAA, the benefits must be offered under a separate policy or employees must be able to decline the benefits.
- Coverage provided under employee assistance programs, wellness programs or on-site medical clinics if employers don’t charge premiums for COBRA coverage. Watch this: Plans not subject to COBRA need not report these items, even if employees pay premiums.
Special
reporting rules
clarified
The IRS has
clarified that
the W-2
reportable cost
is the cost
available as of
Dec. 31 of a
calendar year.
Upshot:
You don’t have
to recalculate
the cost if
employees
provide
elections or
notifications
that
retroactively
affect the cost
of the previous
year’s coverage
(e.g.,
employees’
ex-spouses make
COBRA elections
upon divorce).
You also
don’t have to
provide W-2c
forms if
employees have
already received
their W-2s
before these
types of
elections or
notifications
are provided to
you (e.g.,
employees
receive their
W-2s on Jan. 15
and the election
or notification
is provided on
Jan. 20).
For health
benefit coverage
periods that
include Dec. 31
and continue
into the next
year (e.g., some
biweekly pay
periods end on
the first Friday
in January), the
IRS provides you
with three
reporting
options:
- You can cut off the coverage as of Dec. 31.
- You can carry over the coverage into the next year.
- You can allocate the cost of coverage between the two years using any reasonable method. What’s reasonable? According to the IRS, a reasonable allocation method splits the coverage period into the number of days that fall within each month. Warning: Your allocation method must be applied consistently to all employees.
The cost of
specific disease
or
hospital/fixed-indemnity
plans is
excluded from
reporting.
However, the IRS
now makes clear
that W-2
reporting is
necessary if you
contribute any
amount to the
cost of coverage
and that
coverage is
considered an
employer-provided
health plan, or
if employees buy
policies on a
pretax basis
through
cafeteria plans.
Flip side:
W-2 reporting
isn’t necessary
if employees
pay for their
benefits with
after-tax
dollars and the
benefits are
offered as
independent,
noncoordinated
benefits—that
is, you give
employees the
opportunity to
buy independent,
noncoordinated
policies and
simply withhold
and forward the
premiums.
If your
health plan
provides
employees with
reportable and
nonreportable
benefits, you
may use any
reasonable
allocation
method to
determine the
reportable cost.
Small break:
W-2 reporting
isn’t required
if the value of
employees’
reportable
coverage is
incidental to
the
nonreportable
coverage.
Critical:
The IRS
doesn’t define
incidental
coverage.
The IRS has
also clarified
that you may
voluntarily
report any
benefits that
are excluded
from reporting.
More to come!
Thanks!
FS