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New Guidance Issued on Form W-2 Reporting of Employee Health Coverage

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Johanna M. Novak
Foster Swift Health Care Law E-News
February 29, 2012

The Patient Protection and Affordable Care Act requires employers to report the aggregate cost of "applicable employer-sponsored health coverage" on each employee's Form W-2 ("W-2") beginning with the 2012 tax year.  The Internal Revenue Service ("IRS") has released new guidance regarding this reporting requirement.  The new guidance, found at IRS Notice 2012-9 (the "Notice"), supersedes the previously issued guidance found at IRS Notice 2011-28.

The Notice clarified that there are exceptions to the new W-2 reporting requirements, including the following:

  • Employers required to file fewer than 250 W-2s are exempt from the reporting requirement for the 2012 tax year, and for later tax years as well unless and until further guidance is issued to the contrary.
  • The reporting requirement does not apply to tribally chartered corporations wholly owned by federally recognized Indian tribal governments, until further guidance is issued to the contrary.

The Notice also provided guidance concerning what "applicable employer-sponsored health coverage" entails:

  • Applicable employer-sponsored health coverage includes:
    • coverage under a group health plan, including a self-insured group health plan;
    • coverage under dental or vision plans that are not considered excepted benefits under HIPAA; and
    • the amount of a health flexible spending arrangement ("FSA"), but only if the amount of the health FSA for the plan year exceeds the salary reduction elected by the employee for the plan year.  In that case, the difference between the amount of the employee's health FSA and the employee's salary reduction election for the health FSA must be included in the aggregate reportable cost. This amount will typically equal any employer contribution to the health FSA.
  • Applicable employer-sponsored health coverage does not include:
    • coverage under an employee assistance program, wellness program, or on-site medical clinic, if the employer does not charge a premium with respect to that type of coverage provided to COBRA beneficiaries;
    • long-term care coverage;
    • amounts contributed to an Archer MSA, health reimbursement arrangement, or a health savings account;
    • coverage for accident or disability income insurance, or any combination thereof;
    • dental or vision plans that are considered excepted benefits under HIPAA;
    • coverage issued as a supplement to liability insurance;
    • liability insurance, including general liability insurance and automobile liability insurance;
    • workers' compensation insurance;
    • automobile medical payment insurance;
    • credit-only insurance; or
    • specified disease or illness coverage, or hospital indemnity coverage, provided that such coverage is offered as an independent, non-coordinated benefit.

The IRS reiterated in the Notice that the W-2 reporting requirement is intended only to inform the employee of the cost of his or her health care coverage.  It will not cause employer-provided health care coverage that is otherwise excludable from an employee's gross income to become taxable to the employee.

The guidance contained in the Notice is applicable until further guidance is issued by the IRS.