Value of health care - when and what to report

The IRS has issued a notice providing interim guidance on reporting information to employees about the cost of their group health insurance coverage.

This guidance restates and updates earlier guidance issued late in 2010.

Beginning in tax year 2011, the Affordable Care Act required employers to report the cost of coverage provided through an employer-sponsored group health plan. This reporting is for informational purposes only. It is 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. The value of the employer's contribution to healthcare coverage continues to be excluded from employees' income. It is not taxable.

To give employers more time to update their payroll systems, the IRS issued Notice 2010-69 in the fall of 2010, making the reporting requirement optional for all employers for 2011.

In Notice 2011-28, the IRS made the reporting requirement optional for employers filing fewer than 250 W-2 forms, at least through the 2012 tax year. In other words, those employers required to file fewer than 250 Forms W-2 for 2011 will not be required to report the cost of health coverage on any forms required to be furnished to employees prior to January 2014.

The most recent guidance provides additional information. Among other updates and information, the guidance:

  • Demonstrates that the reporting requirement does not apply to coverage under a healthcare flexible spending arrangement, if contributions occur only through employee salary reductions
  • Clarifies that the reporting requirement does not apply to the cost of coverage includable in income under Code Section 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, wellness program or on-site medical clinic in the reportable amount if the employer does not charge a premium for the coverage
  • States 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
  • Specifies 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, on Form W-2.

Read more in Notice 2012-9.

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