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January 9, 2012
The IRS has released additional guidance regarding the W-2 health insurance reporting requirement contained in the Affordable Care Act (ACA). In Notice 2012-9 released January 5th, the IRS clarifies a number of issues addressed in earlier guidance and extends the small employer exemption (for employers filing fewer than 250 W-2s) from the reporting requirement. Notice 2012-9 clarifies a number of questions and republishes other guidance originally released March 2011 in Notice 2011-28. The new notice also adds eight new Q&As not included in the earlier guidance.
The ACA requires employers to report the “aggregate cost” of certain types of employer provided health coverage on an employee’s W-2. The reporting requirement does not affect the tax status of the benefits, but was designed to assist in collecting the data necessary to administer various provisions of the ACA.
Originally the reporting requirement was optional for tax year 2011, and required for the 2012 tax year (W-2s that are provided to employee in 2013). However, in earlier guidance the IRS further delayed the requirement for employers who file fewer than 250 W-2 for tax year 2011. Notice 2011-28 delayed the rule for these employers until the 2013 tax year (W-2s provided to employees in 2014).
The “applicable cost” of coverage is the entire cost, including both the employer and employee contributions, to an applicable plan. Self-funded plans are generally allowed to utilize the method used to determine applicable COBRA rates to calculate the aggregate cost of a plan. Applicable cost must be calculated on a monthly basis based on the specific coverage maintained by the employee.
"Applicable employer-sponsored coverage" includes coverage under any group health plan made available to employees which is excludable from the employee’s gross income under §106. However, certain benefits (which may be subject to §106) are specifically excluded from the reporting requirement.
Benefits not included in the W-2 reporting requirement:
Possible Further Delay for Small Employers
As stated above, The IRS had previously delayed the reporting requirement for employers who file fewer than 250 W-2s for the 2011 tax year. Notice 2012-9 takes this a step further and states that “… until further guidance is issued, an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year.”. Based on this guidance the filing requirement for small employers (those who file fewer than 250 W-2s) is delayed indefinitely until the IRS releases additional guidance.
Other Clarifications and New Information
Notice 2012-9 also includes a number of other clarifications and new guidance.
While actually including the aggregate cost on employee’s W-2s will not be difficult, the collection of the data necessary to calculate each employee’s amount will create some work for the employer’s human resource and employee benefits departments. If they have not already done so, employer’s who will be required to report health insurance costs of tax year 2012 must quickly develop a system to track the necessary information on W-2s sent in January 2013.
Employers who file fewer than 250 W-2s do not need to worry about this requirement for now, but should continue to monitor the situation in the event that the IRS eventually issues guidance making the rule applicable for small employers sometime in the future.
Notice 2012-9 is available at http://www.irs.gov/pub/irs-drop/n-12-09.pdf