W-2 Updates- Year End Guidance and 2012 Planning

As part of Health Care Reform, employers are required to report the cost of group health coverage on Form W-2, beginning with 2012 W-2s (which will be distributed by January 31, 2013). Cost of coverage is reported on Form W-2 in box 12 using code DD. Employers that will file fewer than 250 2011 W-2 forms need not comply until the 2013 W-2 forms.

Under this provision, group health coverage includes: medical plans, employee assistance plans (EAP), on-site medical clinics that provide more than minimal care, executive physicals and employer contributions to an FSA.

Benefits that DO NOT have to be reported are employee contributions to an FSA (through salary reduction), HRA coverage, HSA contributions (both employer and employee), stand-alone dental and vision plans, long term care coverage and coverage under a stand-alone plan for specific illness or disease.

For most employers, there are 2 methods to compute cost.

• Premium charged - only available to fully insured plans, this is the premium charged by the carrier.
• COBRA Premium - for a self-funded plan, use the COBRA premium, not including the 2% surcharge.

Regardless of the plan year, the cost is reported on a calendar year basis. Cost of coverage includes changes that an employee may have in coverage (e.g. moving from one coverage tier to another).

If your company sponsors a high-deductible health plan, read on....

We also want to remind you about unique requirements for employers that sponsor High Deductible Health Plans with employees contributing to a Health Savings Account (HSA).

If your company sponsored a high deductible health plan (HDHP) in 2011 and employees established Health Savings Accounts (HSAs), contributions made to the HSA by your company and by employees through salary reduction must be reported on form W-2.

As the employer, you are responsible for determining:

1. That the employee was covered by a HDHP sponsored by the employer
2. That the employee was not covered by any impermissible non-HDHP employer plan (think full flexible spending account)
3. For catch-up contributions, that the employee was 55 or older- you may rely on the employees' self reporting for date of birth

Employee contributions made pre-tax through a cafeteria plan are considered employer contributions. These pre-tax cafeteria plan contributions should be combined with any contributions made by your company. This total is reported on Form W-2, Box 12 using code W.

Contributions to an HSA by any Sub-chapter S 2% (or more) shareholders, members of an LLC or LLP are not allowed through a cafeteria plan. These folks, and any others who made their HSA contributions outside of the payroll system, deduct their contributions on their personal Form 1040. 2011 Instructions for Form W-2 state that employer HSA contributions that are not excludable from the employee's income must be reported in Boxes 1, 3, and 5.  Please consult with your payroll and tax advisor for these special circumstances.