IRS issues additional interim guidance on informational reporting of health coverage

The IRS has issued a notice that restates and amends prior interim guidance on information reporting to employees of the cost of their employer-sponsored group health plan coverage. The prior notice, Notice 2011-28, issued on April 18, 2011, solicited comments on various aspects of the reporting requirement. The latest notice, Notice 2012-9, makes changes to the prior guidance and provides additional guidance through new Q&As.

The Patient Protection and Affordable Care Act (PPACA) requires employers to report the cost of employer-provided health care coverage on each employee's annual Form W-2. The IRS reiterates that this reporting to employees is for their information only, to inform them of the cost of their health coverage, and does not cause excludable employer-provided health coverage to become taxable; employer-provided health coverage continues to be excludable from an employee's income, and is not taxable.




Reporting is not mandatory for 2011 Forms W-2 (generally furnished to employees by the end of January 2012). In addition, this notice provides transition relief for certain employers and with respect to certain types of employer-sponsored coverage. This transition relief will be available at least for 2012 Forms W-2 (generally furnished to employees by the end of January 2013). Thus, reporting by employers and with respect to the types of coverage covered by the exceptions provided in this notice will not be required for 2012 Forms W-2.

Employers subject to the reporting requirement. All employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, according to the notice. Employers that are federally recognized Indian tribal governments are not subject to the reporting requirements. The notice clarifies that until further guidance is issued, employers that are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government also are not subject to the reporting requirements.

Also, in the case of the 2012 Forms W-2 (and Forms W-2 for later years unless and until further guidance is issued), an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. The notice clarifies that for this purpose, whether an employer is required to file fewer than 250 Forms W-2 for a calendar year is determined based on the Forms W-2 that employer would be required to file if it filed Forms W-2 to report all wages paid by that employer and without regard to the use of an agent under Code Sec. 3504.

Aggregate reportable cost. The notice clarifies that an employer is not required to include the cost of coverage under a dental or vision plan if the plan satisfies the requirements for being excepted benefits for purposes of HIPAA under IRS Reg. §54.9831-1(b)(3).

The notice also clarifies that the cost of applicable employer-sponsored coverage does not include excess reimbursements of highly compensated individuals that are included in gross income under Code Sec. 105(h). An excess reimbursement that is included in income is subtracted from the cost of coverage in determining the aggregate reportable cost. Similarly, the cost of applicable employer-sponsored coverage does not include the cost of coverage include in gross income as the result of an employee being a 2% shareholder-employee of an employer that is an S corporation.

Calculating the cost. If an employer is using a composite rate for active employees, but is not using a composite rate for determining applicable COBRA premiums for qualifying beneficiaries, the employer may use either the composite rate or the applicable COBRA premium for determining the aggregate cost of coverage, provided that the same method is used consistently for all active employees and is used consistently for all qualifying beneficiaries receiving COBRA coverage.

Additional guidance. The notice also provides the following additional guidance through new Q&As:

• Employers are not required to include the cost of coverage under an employee assistance program (EAP), wellness program, or on-site medical clinic in the reportable amount if the employer does not charge a premium with respect to that type of coverage provided under COBRA to a qualifying beneficiary (Q&A-32).
• Employers may include the cost of coverage under programs not required to be included under applicable interim relief, such as the cost of coverage under a Health Reimbursement Arrangement (HRA) (Q&A-33).
• How to calculate the reportable amount for coverage only a portion of which constitutes coverage under a group health plan (Q&A-34).
• How to calculate the reportable amount if an employer is provided notice after December 31 of a calendar year of events that occurred on or before December 31 of a calendar year that affect the prior year's coverage, such as an employee providing an employer notice of a divorce or other change in family status that occurred during a prior calendar year (Q&A-35).
• How to calculate the reportable amount where coverage extends over the payroll period including December 31 (Q&A-36).
• The application of the exception for certain hospital indemnity or other fixed indemnity insurance offered by an employer on an after-tax basis (Q&A-37 and Q&A-38).
• The reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider (Q&A-39).

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.