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01-10-2012 IRS Clarifies and Revises Interim Guidance on W-2 Reporting of Health Plan Coverage Cost

In Notice 2012-9, released on January 3, 2012, the Internal Revenue Service (the "Service") restated and amended the interim guidance the Service previously provided in Notice 2011-28 regarding an employer's obligation to report to employees the cost of employer-sponsored group health plan coverage.

The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (the "Act"), requires employers to report on an employee's Form W-2 the aggregate cost of the employee's employer-sponsored group health plan coverage (the "Aggregate Cost"). This reporting requirement does not convert otherwise excludable benefits into taxable income. The sole function of the requirement is to provide the employee with new information.

Through Notice 2011-28, for 2011, the Service delayed this mandatory reporting requirement for employers who issue less than 250 Forms W-2s. The Service also provided interim guidance regarding the calculation of the Aggregate Cost. In response to comments received following the 2011 Notice, the Service issued Notice 2012-9 to clarify and supplement existing guidance.

The new guidance provided by Notice 2012-9 clarifies or revises the following areas:

  • Employers required to file less than 250 2011 Forms W-2 (in January 2012), without regard to the use of an agent, are not subject to the reporting requirement for 2012 Forms W-2 (issued in January 2013).
  • Related employers not using a common paymaster may report the cost to one employee on one Form W-2 or may allocate the reportable cost among the employers that currently employ the employee.
  • The reporting requirement does not apply to coverage under health flexible spending arrangements if the contributions occur only through employee salary reduction elections.
  • If a dental or vision plan is covered under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), then the plan is subject to the reporting requirement.
  • The reporting requirement does not apply to costs includible in income under § 105(h) or premium payments for a 2% shareholder-employee of an S corporation who includes the payment in gross income.
  • The Notice clarifies guidance concerning employers who use a composite rate with respect to the premium charged active participants, but not the premium charged under COBRA to a qualifying participant.
  • Tribally chartered corporations are currently not subject to the reporting requirement.

Notice 2012-9 also provides new guidance in the following areas:

  • Employers are not required to report the cost of employee assistance programs, wellness programs, or on-site medical clinics if the employer does not charge a premium for that type of coverage provided under COBRA.
  • Employers may report additional cost information not required by the Act.
  • Cost calculation of coverage only a portion of which constitutes coverage under a group health plan, coverage which has been affected by an event in the previous year but notice to the employer was delayed, or coverage extends over the payroll period including December 31.
  • Certain hospital indemnity and other fixed indemnity insurance offered on an after-tax basis may be excepted.
  • Third-party sick pay providers need not include reportable amounts on Forms W-2.

For employers required to file 250 or more 2011 Forms W-2, these changes and clarifications apply to 2012 Forms W-2, to be issued by the employer in January 2013. Employers filing less than 250 Forms W-2 need not report costs on 2012 Forms W-2. Employers may use this guidance if voluntarily reporting costs on 2011 Forms W-2, which is not required. No employers must report costs on 2011 Forms W-2.

Fraser Stryker is a leader in tax and employee benefits law. Attorneys in the Firm's Taxation and Employee Benefits Practice Groups advise individuals, business entities, governments, and nonprofit/tax-exempt organizations on a wide variety of tax and employee benefits matters and transactions. Fraser Stryker works with employers to implement and maintain employee benefit plans that help attract and retain top talent. For more information on the Form W-2 reporting requirements, please contact or Nicole R. Konen.


This article is provided by Fraser Stryker for general informational purposes and is not intended to be and should not be construed as legal advice on any specific facts or circumstances.

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