OUR THOUGHTS ON:

Good News-IRS further delays Form W-2 health insurance coverage information reporting for small employers.

Health Care|Tax

By Ron Kramer

On March 29, 2011, the Internal Revenue Service (IRS) issued Notice 2011-28 (Notice) providing interim guidance that significantly relaxes the information reporting requirement for employer-sponsored health coverage under the Patient Protection and Affordable Care Act (PPACA). Under the new guidance, reporting continues to be voluntary for all employers in 2011, and it will be voluntary for small employers until further guidance is issued, but at least through 2012. The Notice also provides guidance in a question-and-answer format on the mechanics of the information reporting rule for employers who will be subject to it in 2012, and for those employers that choose to voluntarily comply with it beforehand.

Background

Section 9002 of the PPACA added Section 6051(a)(14) to the Internal Revenue Code (IRC). IRC Section 6051(a)(14) generally provides that the aggregate cost of employer-sponsored health insurance coverage must be reported on Form W-2 for tax years beginning on or after January 1, 2011. For this purpose, the aggregate cost is to be determined under rules similar to the rules of IRC Section 4980B(f)(4) referring to the definition of the “applicable premium” under the rules providing for COBRA continuation coverage.

In October 2010, the IRS issued Notice 2010-69 announcing it would defer the new requirement under Code Section 6051(a)(14) for employers to report the cost of coverage under an employer-sponsored health plan on Form W-2, making the reporting by all employers optional for 2011. The Treasury Department and the IRS determined that relief for 2011 was appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.

Guidance in Notice 2011-28

IRS Notice 2011-28 provides further relief for small employers (i.e., those filing fewer than 250 Forms W-2) by making IRC Section 6051(a)(14) reporting optional for those employers for health coverage provided through at least 2012, or until further guidance is issued by IRS. In other words, small employers won’t have to report the cost of health care coverage on any forms required to be furnished to employees before January 2014 for calendar year 2013, at the earliest.

Large employers filing 250 or more W-2 Forms will be subject to reporting beginning in calendar year 2012. IRS Notice 2011-28 provides additional guidance, in question-and-answer (Q&A) format, to employers who are subject to the information reporting requirement for the 2012 Forms W-2, and to employers that choose to voluntarily comply with it for either 2011 or 2012. The Q&A’s are generally categorized as follows:

  • General requirements
  • Methods for reporting the cost of coverage on Form W-2
  • Definitions of terms relating to the cost of coverage required to be reported
  • The types of coverage for which the cost is required to be included on Form W-2
  • Calculation methods used to determine the cost of coverage, and
  • Other issues relating to the cost of coverage

The frequently asked questions (FAQs) can be located at http://www.irs.gov/newsroom/article/0,,id=237894,00.html.

Summary

The new IRS notice deferring the mandatory W-2 reporting of the cost of health care coverage is welcome relief for small employers. Although it appears that larger employers will be required to comply beginning in 2012, this too could pass if the health care legislation is repealed or modified by Congress.

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