Employers that sponsor health care plans will need to take notice of a new W-2 reporting requirement that takes effect in 2011.
As part of health care reform, employers will now have to start reporting the aggregate cost of employer-sponsored health care coverage on Form W-2. The aggregate cost of coverage under the plans, for both the employee and the employer portions of cost, will be computed under the COBRA cost of coverage rules as defined in Section 4980B of the Internal Revenue Code.
For fully insured plans, the COBRA cost of coverage is generally the amount of premiums paid to the insurer. For self-insured plans, the COBRA cost of coverage is based upon an actuarial estimate of future costs.
Items generally included in the COBRA cost of coverage are:
- Medical coverage
- Prescription drug plans
- Executive physical benefits
- On-site clinics
- Medical supplemental policies
- Employee assistant programs
- Dental and Vision plans (unless they are stand-alone plans)
- Employer contributions to a Flexible Spending Account
Items generally not included in the value:
- Long-term care benefits
- Accident or disability income benefits
- Archer MSA or HSA contributions by the employee
- Salary reduction contributions to a Flexible Spending Account
Employers should start updating payroll systems now in order to provide the information on W-2s no later than February 1, 2011. Although most W-2 forms aren’t required to be filed until January 31, 2012, employees are allowed to request their W-2 early if employment is terminated during the year.
Reporting is required for all employees but may also apply to former employees. If a former employee is provided health insurance, such as in the case of a retiree, terminated employee on COBRA or a surviving spouse, the employer might be required to file a W-2 for the individual. The IRS has not yet issued guidance on the reporting requirements for former employees.
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.