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December 10, 2021
It is close to that time of year again when large employers need to remember to include the cost of health care coverage in employee W-2s. 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.
The IRS provided transition relief for small employers in 2012 and that guidance is still applicable. Per the guidance, the W-2 cost of health care reporting requirement continues to be delayed for employers who filed fewer than 250 W-2s in the previous tax year. The guidance states: “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.” Also, according to the IRS, any guidance that expands the reporting requirements will apply only to calendar years that start at least six months after the guidance is issued.
For purposes of applying this transition relief, the W-2 count is determined without application of any entity aggregation rules for related employers. Consequently, related employers who may be considered under common control for other ACA purposes can be considered separately to determine whether they are subject to the W-2 reporting requirement.
The “aggregate cost” of coverage is the entire plan cost, including both the employer and employee contributions. Self-funded plans are generally allowed to utilize the method used to determine applicable COBRA rates (without adding the 2% administration fee) to calculate the aggregate cost of a plan. Applicable cost must be calculated on a monthly basis based on the specific coverage (e.g., single or family) maintained by the employee.
Reportable 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 are specifically excluded from the reporting requirement. Benefits not required to be included in the W-2 reporting are:
IRS Notice 2012-9 includes guidance on several administrative issues.
Notice 2012-9 also provides guidance on some administrative issues such as how to calculate the reportable amount if an employer is provided notice after December 31 of events that occurred on or before December 31 (e.g., an employee providing an employer notice of a divorce that occurred during a prior calendar year, and how to calculate the reportable amount where coverage extends over the payroll period including December 31).
Additional reporting details are provided in the IRS employer W-2 filing instructions and in the following IRS resources:
The views and opinions expressed within are those of the author(s) and do not necessarily reflect the official policy or position of Parker, Smith & Feek. While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it.