This guest post was authored by Heather DeBlanc
The Patient Protection and Affordable Care Act requires employers to report the cost of employer-provided group health plan coverage on the 2012 Forms W-2 provided to employees this January 2013. Employers who issued fewer than 250 Forms W-2 in January 2012, do not need to comply with this requirement this January 2013, and should wait until further guidance is issued. Employers need only report coverage for individuals to whom they are required to issue a Form W-2.
The aggregate cost of applicable employer sponsored coverage must be reported in Box 12 using the code “DD.” This means that employers must report all coverage amounts paid by both the employer and the employee regardless of whether the employee’s contributions are made on a pre-tax basis.
Applicable employer sponsored coverage includes the following:
- Major medical coverage;
- Dental and vision coverage that is combined with major medical coverage;
- Employer contributions to a health FSA, including flex credits that the employee elects to apply to the health FSA;
- On-Site Medical clinics and employee assistance programs (if a COBRA premium is charged for continued coverage for either);
- Prescription drug coverage;
The following does not fall within the definition of applicable employer sponsored coverage and, therefore, does not need to be reported:
- Employee FSA contributions through salary reductions;
- Health reimbursement arrangement (HRA) coverage;
- Health savings account (HSA) and Archer Medical Savings Account contributions;
- Coverage only for accident or disability income insurance;
- Liability insurance;
- Worker’s compensation;
- Automobile medical payment insurance;
- Coverage for independent, non-coordinated benefits for specific illness or disease;
- Long term care;
- Self-insured group health plans that are not subject to COBRA;
- Coverage provided under a governmental plan that provides coverage primarily for military members and their families.
An employer can use three methods to determine the reportable cost:
- COBRA Applicable Coverage Method: The cost equals the COBRA applicable premium for the period.
- Premium Charged Method: This method only applies to employers with an insured group health plan. The employer uses the premium charged by the insurer for that employee’s coverage for each period as the reportable cost for that period.
- Modified COBRA Premium Method: This method only applies where the employer subsidizes the cost of COBRA. The employer may report a reasonable good faith estimate of the full cost.
Importantly, employers must determine the reportable cost under a plan on a calendar year basis.
The information reported is provided to the IRS for informational purposes only and will not cause the otherwise excludable medical coverage to become taxable.
An employer using a third party administrator should immediately coordinate with that third party administrator to make sure these requirements are being implemented. Penalties for failure to properly report the cost of employer sponsored health coverage on Forms W-2 may range from $30 to $100 per Form W-2 depending on when a correct Form W-2 is submitted.