Note: Applies to both grandfathered and non-grandfathered plans.
Employers were required to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, in box 12, using code DD.
For certain employers and with respect to certain types of coverage, the requirement to report the cost of coverage does not apply 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.
This transition relief applies to the following employers and plans:
Employers who filed fewer than 250 Forms W-2 for the previous calendar year.
Health Reimbursement Arrangements (HRA).
Dental and vision plans that are not integrated into another group health plan or give participants the choice of declining the coverage.
Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
Employee assistance programs, on-site medical clinics, or wellness programs for which the employer does not charge a premium under COBRA continuation coverage or similar requirements.
Employers furnishing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.
Except as provided in the transition relief previously described, all employers that provide “applicable employer-sponsored coverage" under a group health plan are subject to the W-2 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.
In general, the amount reported should include both the portion paid by the employerandthe 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 (only employer contributions).
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.
The IRS gives the plan multiple methods ways to calculate the cost of coverage:
COBRA Applicable Premium Method.The reportable cost for a period equals the COBRA applicable premium for that coverage for that period.
Modified COBRA Premium Method.An employer may use the modified COBRA premium method with respect to a plan only where it subsidizes the cost of COBRA (so that the premium charged to COBRA qualified beneficiaries is less than the COBRA applicable premium) or where the actual premium charged by the employer to COBRA qualified beneficiaries for each period in the current year is equal to the COBRA applicable premium for each period in a prior year.
The employer may determine the reportable cost for a period based upon a reasonable good faith estimate of the COBRA applicable premium for that period, if such reasonable good faith estimate is used as the basis for determining the subsidized COBRA premium.
Example:Employer B determined that the COBRA applicable premium for each month in calendar year 2014 for individuals eligible for COBRA continuation coverage electing self-only coverage would be $350 per month, and charged an actual COBRA premium for such coverage of $357 per month ($350 x 102%). Employer B knows that the cost of coverage for 2015 is not less than the COBRA applicable premium for 2014 and decides not to make a new determination of the COBRA applicable premium for the calendar year 2015 but rather to continue to charge an actual COBRA premium for self-only coverage of $357 per month ($350 x 102%). If Employer B uses the modified COBRA premium method, it must treat $350 per month ($357 charged - $7 increase permissible under COBRA) as the monthly reportable cost for self-only coverage for the calendar year 2015.
Composite Rates.An employer is considered to charge employees a composite rate if:
There is a single coverage class under the plan (that is, if an employee elects coverage, all individuals eligible for coverage under the plan because of their relationship to the employee are included in the elections and no greater amount is charged to the employee regardless of whether the coverage will include only the employee or the employee plus other such individuals); or
There are different types of coverage under a plan (for example, self-only coverage and family coverage, or self-plus-one coverage and family coverage) and employees are charged the same premium for each type 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.
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.
If an employer is using a composite rate for active employees, but is not using a composite rate for determining applicable COBRA premiums for qualifying beneficiaries, the employer may use either the composite rate or the applicable COBRA premium for determining the aggregate cost of coverage, provided that the same method is used consistently for all active employees and is used consistently for all qualifying beneficiaries receiving COBRA coverage.
Mid-Year Cost Change
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, 2014 through September 30, 2015 is $500, and that the monthly reportable cost under a group health plan for self-only coverage for the period October 1, 2015 through September 30, 2016 is $520. Employee is employed by employer for the entire calendar year 2015 and had self-only coverage under the group health plan for the entire year. For purposes of reporting for the 2015 calendar year, Employer must treat the 2015 reportable cost under the plan for Employee as $6,060 (($500 x 9) + ($520 x 3)).
Mid-Year Change in Coverage
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 2015 is $500, and that the monthly reportable cost under the same group health plan for self-plus-spouse coverage for the calendar year 2015 is $1,000. Employee is employed by Employer for the entire calendar year 2015. Employee had self-only coverage under the group health plan from January 1, 2015 through June 30, 2015, and then had self-plus-spouse coverage from July 1, 2015 through December 31, 2015. For purposes of reporting for the 2015 calendar year, Employer must treat the 2015 reportable cost under the plan for Employee as $9,000 (($500 x 6) + ($1,000 x 6)).