W-2 Reporting Requirement Review

Coverage Subject to the Reporting Requirement

Employers must report the aggregate reportable cost of applicable employer-sponsored health coverage. Applicable employer-sponsored health coverage generally includes any coverage under any group health plan which is excludable from the employee’s gross income, or would be excludable if it were employer-provided coverage. However, some types of employer-provided health coverage are not considered “applicable employer-sponsored coverage.” In addition, the cost of certain benefits that are considered applicable employer-sponsored coverage is not required to be included in the reportable aggregate cost. Finally, certain employers are completely exempt from the reporting requirement, regardless of the benefits they provide. These exemptions and exclusions are summarized below.

Benefits That Are Not Considered Applicable Employer-Sponsored Coverage

The following types of coverage that are not considered Applicable Employer-Sponsored Coverage:

• contributions to an Archer MSA or HSA;
• the amount of any salary reduction election to a Health FSA;
• coverage only for accident, or disability income insurance, or any combination thereof;
• coverage issued as a supplement to liability insurance;
• liability insurance, including general liability insurance and automobile liability insurance;
• workers’ compensation or similar insurance;
• automobile medical payment insurance;
• credit-only insurance;
• other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.
• coverage which provides benefits substantially all of which are for treatment of the mouth or eye and qualify as “Excepted Benefits“;
• coverage only for a specified disease or illness; and
• hospital indemnity or other fixed indemnity insurance to which the employer is NOT contributing or which is not being paid for through the cafeteria plan by the employee.

Costs That Are Not Included in the Aggregate Reportable Cost

The following amounts are not included in the aggregate reportable cost:

• the amount contributed to any Archer MSA;
• the amount contributed to any Health Savings Account;
• the amount of any salary reduction election to a health Flexible Spending Arrangement (however see below for the treatment of employer contributions to a health FSA);
• the cost of coverage under a multiemployer plan (i.e., a plan to which more than one employer is required to contribute, that is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer); and
• the cost of coverage under an HRA.

Health Flexible Spending Accounts (FSA)

The amount contributed through salary reduction by an employee to a health FSA is not included in the aggregate cost of employer-sponsored coverage. However, contributions attributed to employer flex credits must be reported to the extent that the value of the health FSA for the plan year exceeds the employee salary reduction contributions. See IRS Notice 2011-28, Q&A 19 for specific examples.

Employers Subject to the Reporting Requirement

All employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, unless they qualify for the transition relief described below. This includes private sector employers, state and local governments, churches and other religious organizations.

Transition Relief

Under the interim transition relief announced in IRS Notice 2012-9, an employer is not subject to the reporting requirement if:

• For any calendar year, the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. (This is based upon the rule that exempts employers from filing returns electronically if they file fewer than 250 returns.)
• The employer sponsors a self-insured plan that is not subject to any federal continuation coverage requirements, such as COBRA, ERISA, PHSA, and the temporary continuation coverage requirement under the Federal Employees Health Benefits Program (for example, a self-insured plan sponsored by a church or religious organization).
• The employer is a federal or state governmental entity or any agency or instrumentality thereof, under a plan maintained primarily for members of the military and their families.
• The employer is a federally recognized Indian tribal government.

This transition relief will continue until the issuance of further guidance.

Method of Reporting on Form W-2

The aggregate reportable cost is reported on Form W-2 in Box 12, using code DD. This information is not required to be reported on Form W-3, Transmittal of Wage and Tax Statements.

Please note that an employer is not required to report any amount in Box 12, for an employee who has requested to receive a Form W-2 before the end of the calendar year during which the employee terminated.

If an individual has multiple employers within a calendar year, each employer must only report the cost of coverage it provides. However, if employers are related employers within the meaning of Internal Revenue Code Section 3121(s) and one employer is a common paymaster for wages paid to the employee, the common paymaster must include the aggregate reportable cost of the coverage provided to that employee by all the employers for whom it serves.

Aggregate Reportable Cost of Applicable Employer-Sponsored Coverage

The aggregate reportable cost generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether:

• The employee paid for that cost through pre-tax or after-tax contributions;
• The plan is fully insured or self-insured;
• Any of the cost is included as imputed income to the employee;
• The scope of the coverage also includes spouses and dependents.

Methods of Calculating the Cost of Coverage

An employer may calculate the reportable cost under a plan using one of the following methods:

COBRA Applicable Premium Method: The reportable cost for a period equals the COBRA applicable premium for that coverage for that period.

Premium Charged Method: This may only be used for an employee covered by an employer’s fully-insured group health plan. In this case, the employer must use the premium charged by the insurer for that employee’s coverage (for example, for single-only coverage or for family coverage, as applicable to the employee) as the reportable cost for that period.

Modified COBRA Premium Method: If the employer subsidizes the cost of COBRA, the employer may determine the reportable cost for a period based upon a reasonable good faith estimate of the COBRA applicable premium for that period, if such reasonable good faith estimate is used as the basis for determining the subsidized COBRA premium. If the actual premium charged by the employer to COBRA qualified beneficiaries for each period in the current year is equal to the COBRA applicable premium for each period in a prior year, the employer may use the COBRA applicable premium for each period in the prior year as the reportable cost for each period in the current year.

• If an employer charges the same rate for all employees regardless of their coverage, it can report the same amount for all employees for the period, using one of the methods described above. In addition, if the plan has different types of coverage (employee-only, family, etc.) and the employees in each of the coverage groups pay the same premium, then each coverage group can have the same reported amount for the period.
• If an employee changes coverage during the year, an employer may use any reasonable method to determine the reportable cost for such period, such as using the reportable cost at the beginning of the period or at the end of the period, or averaging or prorating the reportable costs, provided that the same method is used for all employees with coverage under that plan.
• Similarly, if an employee commences coverage or terminates coverage during a period, an employer may use any reasonable method to calculate the reportable cost for that period, provided that the same method is used for all employees with coverage under the plan.
• Please note that the reported amount must also reflect any cost increases or decreases that occur during the year.