Earlier this week, the IRS issued Notice 2012-9, "Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage."
As the IRS notes on its page outlining the provisions of the Affordable Care Act, starting in tax year 2011, the Act required employers to report the cost of coverage provided through an employer-sponsored group health plan. This reporting is for informational purposes only, and intended to show employees the value of their healthcare benefits so they can be more informed consumers. The amount reported does not affect tax liability, and the value of the employer's contribution to health coverage continues to be excluded from employees' income, and isn't taxable.
However, to give employers more time to update their payroll systems, Notice 2010-69, issued in the fall of 2010, made this reporting requirement optional for all employers in 2011.
In addition, IRS Notice 2011-28, issued in 2011, provided relief for employers filing fewer than 250 W-2 forms. It made the reporting requirement optional for them at least through the 2012 Forms W-2, which are furnished to employees in January 2013. In other words, those employers to which the additional transition relief applies, including employers required to file fewer than 250 2011 Forms W-2, will not be required to report the cost of health coverage on any forms required to be furnished to employees prior to January 2014. Moreover, the relief continues until the issuance of further guidance.
The most recent guidance, 2012-9, provides additional information. Among other updates and information, the guidance:
● demonstrates that the reporting requirement does not apply to coverage under a health flexible spending arrangement (FSA), if contributions occur only through employee salary reductions.
● clarifies that the reporting requirement does not apply to the cost of coverage includible in income under 105(h), or payments or reimbursements of health insurance premiums for a 2 percent shareholder-employee of an S corporation who is required to include the premium payments in gross income.
● provides that employers are not required to include the cost of coverage under an employee assistance program (EAP), wellness program, or on-site medical clinic in the reportable amount if the employer does not charge a premium for the coverage.
● provides that the reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider.
● Clarifies that employers may include the cost of coverage under programs not required to be included under applicable interim relief, such as the cost of coverage under a Health Reimbursement Arrangement.
● States that employers that would have filed more than 250 Forms W-2 for the previous year if they hadn't used a payroll agent would be subject to the reporting requirement.
Companies that do report this information to employees will use box 12, code DD in Form W-2.