W-2 Reporting -- What Employers Need to Know
We have previously communicated to employers that they will eventually be required to report the cost of company-sponsored medical benefits on employees’ W-2 forms. The following Q&A summarizes the important features and implementation dates for the new requirement:
Why will employers be required to report medical plan costs on W-2s?
The recently-enacted Patient Protection and Affordable Care Act (PPACA) requires employers to include the cost of health coverage on W-2 forms
When will employers be required to start reporting medical plan costs on W-2s?
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For employers that issue fewer than 250 W-2s in 2011, the requirement starts with all 2013 W-2 filings
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For employers that issue 250 or more W-2s in 2011, the requirement starts with all 2012 W-2 filings
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Employers of any size have the option to voluntary report medical plan costs on the W-2s for 2011 filings
Now that medical coverage cost will be listed on W-2s, does that make it taxable?
No, this is a reporting requirement only and does not affect the taxation status for medical plan costs.
How will employers know what amount to report on the W-2?
There are three methods employers can use to calculate the cost of coverage:
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COBRA-applicable premium
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Modified COBRA premium
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Premium charged (for insured plans only)
For more details on these methods, see the IRS Notice 2011-28 for interim guidance on how to calculate the cost of coverage.
What type of coverage does not need to be reported on the W-2 form?
The current understanding is that employers would not need to include costs for the following in W-2 reporting:
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Accident insurance
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Disability insurance
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Employee contributions to health care flexible spending accounts (HCFSAs) and health savings accounts (HSAs)
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Long-term care insurance
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Standalone dental and vision coverage
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Workers’ compensation insurance
This list of exclusions above may change as additional clarification is released by the IRS in coming months.
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