Reporting Group Health Plan Costs on Form W-2

As a refresher, under PPACA, employers are required to report the total cost of employer-sponsored group health plan coverage on each employee's W-2. The employer must report the cost of coverage on a calendar year basis, regardless of the plan year used for the health plan. The W-2 reporting requirement does not cause the cost of such coverage to be included in the employee's income or otherwise become subject to federal taxation.

The reporting requirement will first apply with respect to coverage provided in 2012. This means that most employers must begin reporting the costs of employees' health coverage for 2012 and report that value on the W-2, which generally will be provided to employees in January 2013. The following summary highlights pertinent items as well as where to find the items in question within the document.

New Guidance

• Employee Assistance Program (EAP), Wellness Program or Onsite Medical Clinic: Coverage provided under an EAP, wellness program or onsite medical clinic is not required to be reported if the employer does not charge a premium for the cost of this coverage to COBRA beneficiaries. On the other hand, if a COBRA premium is charged, then the employer must report the value of the coverage. (Q&A 32)
• Optional Inclusion of Exempt Benefits: An employer may include in the "aggregate reportable cost" that is reported on Form W-2 the cost of coverage that is not otherwise required to be reported under applicable interim relief, including coverage under an HRA, a multiemployer plan, an EAP, a wellness program or an on-site medical clinic, provided such coverage is calculated using a permissible method as outlined in the notice, and is applicable employer-sponsored coverage. (Q&A 33)
• Retroactive Changes to Coverage After Year-end:  The notice provides that the aggregate reportable cost for a calendar year may be based on information available to the employer as of Dec. 31 of that year, without regard to any election or notification made after such date that retroactively affects coverage. Therefore, any election or notification that is made or provided in the subsequent calendar year that has a retroactive effect on coverage in the earlier year is not required to be included in the calculation of the aggregate reportable cost for the calendar year. (Q&A 35)
• Coverage Covering Two Reporting Years: New guidance is provided concerning how to report the cost of coverage that spans two taxable years. Whichever method the employer decides to use must be applied consistently to all employees. Where a coverage period extends beyond Dec. 31 of a reporting year, the employer has the option to: 
  • Treat the coverage as provided under the calendar year that includes Dec. 31;
  • Treat the coverage as provided during the calendar year immediately subsequent to the calendar year that includes Dec. 31; or
  • Allocate the cost of coverage for the coverage period between each of the two calendar years under any reasonable allocation method, which generally should relate to the number of days in the period of coverage that fall within each of the two calendar years. (Q&A 36)
• Hospital Indemnity/Specific Disease Coverage: The notice provides that the exclusion from applicable employer-sponsored coverage for hospital indemnity plans, fixed indemnity insurance and coverage for a specific disease does not apply if the employer makes any contribution to the cost of coverage that is excludable from income, or if the employee purchases the policy on a pre-tax basis under a cafeteria plan. On the other hand, the cost of coverage for hospital indemnity plans, fixed indemnity insurance and coverage for a specific disease is not required to be included if the benefit is offered as an independent, noncoordinated benefit and is paid for with after-tax dollars or is includible in gross income. (Q&A 37 38)
• Third-party Sick Pay Providers: Generally, a third-party provider that makes payments of sick pay to employees and provides a separate W-2 to those employees has no responsibility for reporting the cost of the employer's group health coverage on a W-2. However, a Form W-2 furnished by the employer must include the aggregate reportable cost of group health coverage regardless of whether that Form W-2 also includes sick pay or a third-party provider is furnishing a separate Form W-2 reporting the sick pay. (Q&A 39)

Clarifications to Previous Guidance

• Small Employer: Employers required to file fewer than 250 Forms W-2 for the previous plan year are exempt from the reporting requirement for 2012. (Q&A 3)
• Health FSA Reporting: The notice clarifies that the amount of a health FSA is not required to be included in the aggregate reportable cost reported on Form W-2 if the amount of the health FSA is funded only through employee salary reduction contributions. (Q&A 19)
• Dental and Vision Plan Reporting: The notice also clarifies that the cost of coverage under a dental or vision plan is not included in the aggregate reportable cost if the dental or vision plan satisfies the requirements for being a HIPAA-excepted benefit. (Q&A-20)
• 105(h) Clarification and S Corporations: The notice modifies the guidance on excess reimbursements to clarify that the aggregate reportable cost does not include excess reimbursements of highly compensated individuals that are included in income solely because a self-funded plan violates the nondiscrimination rules in IRC § 105(h). In addition, a similar rule applies to coverage provided to 2 percent shareholder-employees of S corporations. (Q&A 23)
• Use of Composite Rates: The notice clarifies that an employer who uses a composite rate for active employees but not for COBRA beneficiaries may use either rate for determining the applicable cost to be reported, as long as it is used consistently. (Q&A 28)