IRS Issues A Chart To Help Employers Determine What Health Insurance Coverage Must Be Reported On Form W-2

Vol. 2 No. 7

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The IRS has issued a chart that lists various types of health insurance coverage, and whether that coverage must be reported on Form W-2 by many employers beginning with the 2012 calendar year.

Background.

Code Sec. 6051(a)(14), which was added to the Internal Revenue Code by §9002 of the Patient Protection and Affordable Care Act (Health Care Act, P.L. 111-148), generally provided that the “aggregate cost” of employer-sponsored health insurance coverage must be reported on employee W-2 forms. In 2010, the IRS issued a notice (Notice 2010-69, 2010-44 IRB) that made this new reporting requirement optional for all employers on 2011 W-2 forms. In 2011, the IRS issued a notice (Notice 2011-28, 2011-16 IRB) that made the reporting requirement optional for small employers (i.e., those filing fewer than 250 W-2 forms) at least through the 2012 calendar year. In January 2012, the IRS issued a notice (Notice 2012-9, 2012-4 IRB) that provided interim guidance on the information reporting requirements for employer-sponsored health coverage.

The chart.

The new chart is derived from Notice 2012-9, 2012-4 IRB. It has the following four columns: (1) Coverage Type; (2) Report on Form W-2; (3) Do Not Report on Form W-2; and (4) Optional Reporting.

Health insurance coverage that must be reported on Form W-2 includes the aggregate cost of major medical insurance; the health flexible spending allowance (FSA) value for the plan year in excess of the employee's cafeteria plan salary reductions for all qualified benefits; the cost of hospital indemnity insurance, or the amount paid for a specified illness (insured or self-funded) through salary reduction (pre-tax) or by the employer; and domestic partner health insurance coverage included in gross income.

Health insurance coverage that does not have to be reported on Form W-2 includes health FSAs funded solely by salary reduction amounts; health savings arrangement (HSA) contributions (employer or employee); Archer medical savings account (MSA) contributions (employer or employee); the cost of hospital indemnity insurance, or the amount paid for a specified illness (insured or self-funded) on an after-tax basis; accident or disability income; long-term care; workers' compensation; automobile medical payment insurance; and payments/reimbursements of health insurance premiums for a 2% shareholder employee that was included in the employee's gross income.

It is optional for the employer to report the following health insurance coverage on Form W-2: dental or vision plan not integrated into another medical or health plan; dental or vision plan that includes the choice of declining or electing and paying an additional premium; health reimbursement arrangement (HRA) contributions; and self-funded plans not subject to the federal Consolidated Omnibus Budget Reconciliation Act (COBRA).

The chart also notes that it is optional to report the aggregate cost of employer-sponsored health insurance coverage on Form W-2 if (1) employers are required to file fewer than 250 W-2 forms for the preceding calendar year; and (2) a W-2 form was furnished to an employee who terminated before the end of a calendar year, and the employee requested in writing a W-2 form before the end of that year. In addition, it is optional for third-party sick-pay providers that provide W-2 forms to employees of other employers to report the aggregate cost of employer-sponsored health insurance coverage on Form W-2.

Items listed on the chart as “optional” may be changed by future IRS guidance. However, any such change will not be applicable until the tax year beginning at least six months after the date of the issuance of such guidance.

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