Health Reform Questions: Form W-2 Reporting
In meeting the new Form W-2 Reporting requirements, what coverages provided by the employer to employees must be reported?
The Form W-2 reporting requirement applies only to “applicable employer-sponsored coverage,” a term that generally includes any employer-provided group health plan coverage under an insured or self-insured health plan that is excludable from the employee’s gross income under Code § 106, or that would be excludable if it were paid for by the employer. It is subject to numerous exceptions, including exceptions for:
* any coverage for long-term care;
* any coverage (whether through insurance or otherwise) described in Code § 9832(c)(1), which includes accident and disability coverage, but no exception applies for coverage for on-site medical clinics;
* certain stand-alone vision or dental coverage (as discussed below); and
* any coverage described in Code § 9832(c)(3) (i.e., coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance) where such coverage is funded by the employee on an after-tax basis for which a deduction under Code § 162(l) is not allowable as provided in PPACA, Pub. L. No. 111-148, § 9002 (2010) (cross-referencing Code § 4980I(d)(1), which was added by PPACA, Pub. L. No. 111-148, § 9001 (2010)).
Dental and Vision Coverage
Applicable employer-sponsored coverage subject to the reporting requirement does not include stand-alone, insured dental, or vision coverage, as provided in Code § 4980I(d)(1)(B). Based on a reading of the statutory language, it appears that the cost of insured dental or vision coverage which is offered “under a separate policy, certificate, or contract of insurance” is excluded from the aggregate cost of employer-sponsored coverage to be reported on the employee’s Form W-2, as provided in Code § 4980I(d)(1)(B)(ii)
By contrast, under the literal language of the statute, the cost of self-insured dental or vision coverage (whether a limited-scope stand-alone benefit or bundled with medical) appears to be included on the employee’s Form W-2. Interim guidance issued in IRS Notice 2011-28 conforms the treatment of self-insured and fully insured dental/vision plans by providing transition relief.
Transition Relief for Stand-Alone Dental or Vision Coverage (Whether Insured or Self-Insured).
IRS Notice 2011-28 provides transition relief by not requiring employers to include the cost of coverage under a dental or vision plan (provided on an insured or self-insured basis) if such plan is not integrated into a group health plan providing additional health care coverage subject to the reporting requirement, as provided under IRS Notice 2011-28, 2011-16 I.R.B. 656, Q/A-20.
Health Savings Account (HSA) and Archer MSA Contributions
HSA and Archer MSA contributions are included in the definition of applicable employer-sponsored coverage, but they are explicitly excluded from the W-2 reporting obligation, as provided in Code § 4980I(d)(2)(C). A special rule applies to health FSAs.
Special Rules for Health FSA Contributions
Health FSA contributions are included in the definition of applicable employer-sponsored coverage, but special rules apply with respect to the W-2 reporting obligation, as provided in Code § 4980I(d)(2)(B). The amount of any salary reduction election to a health FSA is excluded from the aggregate reportable cost and is not reported on Form W-2, as provided in IRS Notice 2011-28, 2011-16 I.R.B. 656, Q/A-16. Where the health FSA is offered through a cafeteria plan under which optional employer flex credits (expressed as a fixed amount, or as formula such as matching salary reduction) can be applied to the health FSA, special rules must be applied to determine whether any amount must be included in the aggregate reportable cost as follows:
* If the amount of the employee’s salary reduction (for all qualified benefits) equals or exceeds the amount of the health FSA for a plan year, then the amount of the employee’s health FSA is not included in the aggregate reportable cost.
* If the amount of the employee’s health FSA for a plan year exceeds the employee’s salary reduction for that plan year, then the amount of the employee’s health FSA minus the employee’s salary reduction election for the health FSA must be included in the aggregate reportable cost.
Coverage Under a Health Reimbursement Arrangements (HRA)
Under transition relief provided in IRS Notice 2011-28, 2011-16 I.R.B. 656, Q/A-18, an employer is not required to include the cost of coverage under an HRA in determining the aggregate reportable cost. Thus, if the only applicable employer-sponsored coverage provided to an employee is an HRA, no reporting is required on the Form W-2.
Transition Relief for Certain Employers and Coverage
For instances in which transition relief is provided under IRS Notice 2011-28, the IRS has indicated that future guidance may prospectively limit the availability of some or all of this transition relief-but it will not apply earlier than January 1 of the calendar year beginning at least six months after it is issued and will not limit the availability of the transition relief for the 2012 Forms W-2.
Transition relief is available for the following:
* employers filing fewer than 250 Forms W-2,
* certain Forms W-2 furnished to terminated employees before the end of the year,
* relief with respect to multiemployer plans,
* certain dental and vision plans, and
* self-insured plans of employers not subject to COBRA continuation coverage or similar requirements.
A copy of IRS Notice 2011-28 can be obtained by clicking on the link below: