New W-2 Health Coverage Reporting: What Employers Need to Know
Monday, February 13, 2012
Some Rhode Island employees may have noticed a new amount on their 2011 W-2: box 12 code DD. That’s because, as a requirement of the 2010 Patient Protection and Affordable Care Act, companies who issued more than 250 W-2s for 2011 had the option of reporting the total value of employer-sponsored health coverage in that spot. Beginning with tax year 2012, box 12 code DD is mandatory.
Who Must Report?
All employers who provide “applicable employer-sponsored coverage” during a calendar year are subject to the reporting requirement, including federal, state, and local government entities (a few exceptions apply, such as federally recognized Indian tribal governments).
The reporting requirement has been delayed for small groups, meaning those who will issue less than 250 W-2s for the 2012 tax year. The soonest these employers might have to report the value of employee health coverage is January 2012 (on the 2013 W-2s).
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTOther exceptions to the reporting requirement include:
- Employers who provide coverage under a self-insured health plan that is not subject to any federal continuation coverage requirements (e.g., certain church plans)
- Plans maintained by the government primarily for members of the military and their families
- Related employers, in which case only the common paymaster must report the cost of coverage provided to an employee by all the employers for whom it serves as the common paymaster
What’s Reportable…And What’s Not
The amount reported on the W-2 must include the aggregate annual cost of both employer and employee contributions (even if paid through pre- or after-tax contributions) toward employer-provided group health plan coverage.
For purposes of determining whether a specific arrangement is a group health plan, employers may rely upon a good faith interpretation of statutory provisions and applicable guidance, including the definition under the IRS’ COBRA regulations.
The total must also include the cost of coverage for any person covered by the plan because of a relationship to the employee, including any portion of the cost that is includible in the employee's gross income.
Excluded from the new reporting requirement are contributions to HSAs, the amount of any salary reduction election to a health FSA, coverage under an HRA, and the costs for benefits such as long-term care insurance or stand-alone dental and vision coverages.
The cost of employee assistance programs (EAP), on-site clinics, and other wellness initiatives may have to be reported if they qualify as group health plans. This determination depends on how the employer administers COBRA continuation coverage for such benefits.
- If the employer does not charge a COBRA premium for continued coverage under the EAP, on-site clinic, or wellness programs, the employer is not required to report the value of such coverage on the employee’s W2.
- If the employer does charge a COBRA premium, it must report the value of the coverage.
Even if an employer is not required to report the value of certain types of health coverage, it may still choose to report these amounts.
Coverage That Ends Early or Straddles Two Years
When an employee terminates employment during a calendar year, an employer may apply a reasonable, consistent method of reporting the cost of coverage provided under a group health plan.
Where a coverage period (e.g. final payroll period) extends beyond December 31 of a reporting year, employers may use a reasonable allocation method to divide the cost between the two years, or treat the coverage period as occurring either entirely before December 31 or after December 31.
How Do Employers Calculate W-2 Costs?
Employers are permitted to calculate the reportable cost of health coverage using one of three methods:
- The COBRA applicable premium method (for self-funded plans)
- The premium charged method (for insured plans)
- The modified COBRA premium method (for an employer that subsidizes the cost of coverage or determines the cost of coverage for a year by applying the cost of coverage in a prior year)
Let Employees Know
While the Box 12 figure presents some challenges for employers, it might also cause some concern among employees. To avoid confusion, send out a communication to all employees. In it, explain that the new number that will appear on their Form W-2 for the year 2012 is mandated by the healthcare reform law for informational purposes only and doesn’t indicate a taxable or withholding amount.
Although the first W-2s on which the value of health coverage must be reported are not due until January 31, 2013, employers will want to ensure that they are able to capture all the data they will need in order to comply with this reporting requirement, so it’s not too soon to start planning any software programming updates.
Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.
For more health and business coverage, watch GoLocalTV, live every day at 4pm, and on demand 24/7, here.
Related Articles
- Smart Benefits: Better Data for Better Care
- Who Has Better Healthcare Coverage: Private or Municipal Employees?
- What Is Affordable Healthcare?
- RI’s Healthcare Trends for 2012
- Onsite Medical Clinics: Battling Rising Healthcare Costs