By Allison Bell
January 6, 2012
An Internal Revenue Service (IRS) has tried to boil the new tax Form W-2 health benefits cost reporting requirements down into terms that mortals without advanced accounting credentials can understand.
Wanda Valentine, a senior tax analyst at the IRS, writes about the new W-2 reporting requirements in an employer newsletter.
The Patient Protection and Affordable Care Act of 2010 (PPACA) requires the IRS to establish health benefits cost reporting requirements. Later, the IRS is supposed to set up a program to impose an excise tax on health benefits packages with costs that exceed a designated threshold.
Employers are supposed to report an employee’s health benefits cost in Box 12 on the W-2 using Code DD to identify the amount.
Benefits cost reporting is voluntary for the W-2 forms now going out, but reporting is supposed to become mandatory for issuers of 2012 W-2s.
Even in 2012, “the amount reported does not affect tax liability,” Valentine says.
The IRS tried clarify the new reporting rules earlier this week in IRS Notice 2012-9, a long, complicated batch of guidance.
“The amount reported on the Form W-2 should include both the portion paid by the employer and the portion paid by the employee,” Valentine says.
Valentine notes that, under current law, employers will always have to include some types of expenses and will never have to include others.
The IRS is developing guidance for handling a third batch of benefits expense categories. It will provide transitional relief allowing employers to keep those expenses out of the W-2 health benefits cost totals until guidance is available, Valentine says.
Categories that can always stay out of the health benefits cost total include the cost of:
- Long-term care coverage.
- Coverage for “HIPAA excepted benefits,” such as accident insurance and disability insurance.
- Liability insurance.
- Worker’s Compensation
- Archer MSA amounts
- Health Savings Accounts (HSAs)
- Salary reductions for flexible spending accounts (FSAs)
Valentine says transitional relief treatment is available for:
- Employers filing fewer than 250 Forms W-2 for the previous calendar year.
- Multi-employer plans.
- Health Reimbursement Arrangements.
- Dental and vision plans that are not integrated into another group health plan.
- Self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
- Wellness benefits, employee assistance plans and on-site medical clinics, to the extent that the employer does not charge any amount to qualified beneficiaries for applicable COBRA continuation coverage or similar coverage.
- Forms W-2 furnished to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.