Employers will be required to report the cost of health benefits on the 2012 Forms W-2 (generally required to be furnished to employees in January 2013). Transition relief is available for certain employers and with respect to certain types of coverage, as explained below.
For certain employers and with respect to certain types of coverage, the requirement to report the cost of coverage will not apply for the 2012 Forms W-2 and will not apply for future calendar years until the IRS publishes guidance giving at least six months of advance notice of any change to the transition relief. However, reporting by these employers and for these types of coverages may be made on a voluntary basis.
The transition relief applies to the following:
Except as provided in the transition relief described above, all employers that provide “applicable
employer-sponsored coverage" under a group health plan are subject to the reporting requirement.
This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments or, until further guidance, any tribally chartered corporation wholly owned by a federally recognized Indian tribal government.
The chart below shows the different types of coverage that employers must report on the Form W-2:
Form W-2 Reporting of Employer-Sponsored Health Coverage | |||
Coverage Type | Form W-2, Box 12, Code DD | ||
Report | Do Not Report | Optional | |
Major medical | X | ||
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 (e.g. Employee money) | X | ||
Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits | X | ||
Health Savings Arrangement (HSA) contributions (employer or employee) | X | ||
Archer Medical Savings Account (Archer MSA) contributions (employer or employee) | 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 | |
Multi-employer plans | X | ||
Domestic partner coverage included in gross income | X | ||
Self-funded plans not subject to Federal COBRA | X | ||
Other Situations | Report | Do Not Report | Optional |
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers) | 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 |
In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee regardless of whether the employee paid for that cost through pre-tax or after-tax contributions. In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions.
Each employer providing employer-sponsored coverage must report the cost of coverage it provides. However, there are different rules when employers concurrently employ an employee and the employers are related.
The IRS gives the plan multiple ways to calculate the cost of coverage:
In such a case, the employer using a composite rate may calculate and use the same reportable cost for a period for: (1) the single class of coverage under the plan: or (2) all the different types of coverage under the plan for which the same premium is charged to employees, provided this method is applied to all types of coverage provided under the plan.
For example, if a plan charges one premium for either self-only coverage, or self-and-spouse coverage (the first coverage group), and also charges one premium for family coverage regardless of the number of family members covered (the second coverage group), an employer may calculate and report the same reportable cost for all of the coverage provided in the first coverage group, and the same reportable cost for all of the coverage provided in the second coverage group.
The reportable cost for an employee receiving coverage under the plan is the sum of the reportable costs for each period (such as a month) during the year as determined under the method used by the employer. An employer is not required to use the same method for every plan, but must use the same method with respect to a plan for every employee receiving coverage under that plan.
If the cost for a period changes during the year (for example, under the COBRA applicable premium method because the 12-month period for determining the COBRA applicable premium is not the calendar year), the reportable cost under the plan for an employee for the year must reflect the increase or decrease for the periods to which the increase or decrease applies.
Example: Employer determines that the monthly reportable cost under a group health plan for self-only coverage for the period October 1, 2011 through September 30, 2012 is $500, and that the monthly reportable cost under a group health plan for self-only coverage for the period October 1, 2012 through September 30, 2013 is $520. Employee is employed by employer for the entire calendar year 2012 and had self-only coverage under the group health plan for the entire year. For purposes of reporting for the 2012 calendar year, Employer must treat the 2012 reportable cost under the plan for Employee as $6,060 (($500 x 9) + ($520 x 3)).
If an employee changes coverage during the year, the reportable cost under the plan for the employee for the year must take into account the change in coverage by reflecting the different reportable costs for the coverage elected by the employee for the periods for which such coverage is elected. If the change in coverage occurs during a period (for example, in the middle of a month where costs are determined on a monthly basis), an employer may use any reasonable method to determine the reportable cost for such period, such as using the reportable cost at the beginning of the period or at the end of the period, or averaging or prorating the reportable costs, provided that the same method is used for all employees with coverage under that plan.
Similarly, if an employee commences coverage or terminates coverage during a period, an employer may use any reasonable method to calculate the reportable cost for that period, provided that the same method is used for all employees with coverage under the plan.
Example: Employer determines that the monthly reportable cost under a group health plan for self-only coverage for the calendar year 2012 is $500, and that the monthly reportable cost under the same group health plan for self-plus-spouse coverage for the calendar year 2012 is $1,000. Employee is employed by Employer for the entire calendar year 2012. Employee had self-only coverage under the group health plan from January 1, 2012 through June 30, 2012, and then had self-plus-spouse coverage from July 1, 2012 through December 31, 2012. For purposes of reporting for the 2012 calendar year, Employer must treat the 2012 reportable cost under the plan for Employee as $9,000 (($500 x 6) + ($1,000 x 6)).
The information provided in this document is provided for informational purposes only, is not all inclusive and is not intended to advise your Plan how it may comply with any provisions of the referenced legislation or related legislation or regulations, nor it is otherwise intended to impart any legal advice. If you have any questions about how to comply with this or any other law or regulation, we recommend that you consult with your attorney.