10.28.10

The Patient Protection and Affordable Care Act does a lot more than mandate healthcare coverage. It also requires that companies report the value of employer-sponsored group health coverage on employee W-2s.

Under the health reform law, reporting was supposed to begin with W-2s for the 2011 tax year. But thanks to a recent ruling from the IRS, employers now have an additional year to comply with this requirement. (IRS Notice 2010-69)

New rules: Beginning with W-2s issued for 2012, employers will have to include the value of the healthcare coverage they sponsor for staff members. The purpose is "to provide employees with greater transparency into overall healthcare costs." The IRS wants to make it clear that this reporting is for information only, and the value of the health insurance does not represent taxable income to recipients.

To accommodate the change, the IRS has created a draft Form W-2, available for 2011. Employers can choose to use the new form and report the healthcare figures, but there is no penalty for not using it. 

Why the Extra Year?

The IRS recognized that many issues had not been adequately communicated to employers and other questions needed to be resolved. Organizations need time to make the necessary "changes to their payroll systems or procedures in preparation for compliance with the new reporting requirements," the IRS stated.
Here are a few of the questions that await resolution:

•    What should be included in the aggregate, reportable cost of health insurance (beyond major medical, dental, vision)? Should administrative costs be reported in the total?
•    How does coverage for the employee's spouse, dependents, alternate payee, or domestic partner affect the value of healthcare coverage?
•    How should employers report the value of healthcare insurance to retirees who are still covered, but no longer receive W-2s?
The IRS states that guidance on these issues will be issued later this year.
 

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