The Patient Protection and Affordable Care Act [HR 3590] and the Health Care and Education Reconciliation Act of 2010 [HR 4872] are two bills that were signed into law in March of 2010 whose purpose is to mandate that all US residents obtain health insurance coverage. In order to accomplish this goal, a number of new rules were created, including health insurance reporting requirements for certain employers to report the cost of employer-sponsored health insurance coverage on the Forms W-2 starting in the year 2011. We have received a number of questions from employers about this requirement, including what types of insurance to report, and how to calculate the cost of the insurance that needs to be reported. The first thing that employers and employees should know is that the reported amount is informational only. It is intended as a way to communicate the cost of health care coverage to employees. It does not make the nontaxable portion of employer provided health insurance taxable to the employee. Employers that issued less than 250 Forms W-2 for 2011 can choose to report employer-provided health insurance on 2012 Forms W-2, but are not required to do so. Employers that issued more than 250 Forms W-2 in 2011 are required to report employer-provided health insurance on 2012 Forms W-2 and later.
If an employer is required to or chooses to report the cost of employer-provided health insurance on 2012 Forms W-2, the employer should take the following steps:
1. Determine which benefits are considered employer-provided health insurance coverage subject to the reporting requirement. A table of coverage types and reporting requirements can be found on the IRS website. The page also has helpful links to important forms and frequently asked questions about this requirement.
2. Determine how to calculate the cost of employer-provided health insurance. The cost of coverage is the premium charged by the insurer for that employee and his or her family members. In most cases, the amount reported should include the total amount paid (employer and employee). Include the cost of coverage for the employee and any person covered under the plan because of a relationship to the employee, including any amount that is includable in the employee’s gross income. If reporting a health FSA, do not include the amount of salary reduction contributions. Notice 2012-9 has valuable information about the reporting of health FSAs and guidelines for calculating the cost of coverage for all types of employees.
3. Ensure that employee coverage is being tracked consistently and accurately within the employer’s organization.
4. Provide MassPay with the cost of employer-provided health insurance that should be included on each employee’s 2012 Form W-2 in box 12, using code DD.
Anyone with questions about this requirement should contact their payroll specialist at MassPay and/or the Internal Revenue Service at (800) 829-4933.