The IRS has provided a one-year grace period to employers from a new requirement to report the cost of employer-sponsored health insurance to their employees on Form W-2, Wage and Tax Statement. Rather than strictly enforce the new Patient Protection and Affordable Care Act of 2010 (PPACA) requirement that Forms W-2 issued starting for the 2011 tax year include the cost of health coverage cost, the IRS is giving employers the option of skipping such reporting until W-2s are issued for the 2012 tax year.
The IRS stressed that the relief is appropriate “to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirements.” Getting procedures in place to start capturing the cost of health coverage immediately on January 1, 2011, has been proving extremely difficult for some businesses.
The relief applies to Forms W-2 issued in 2012 for the 2011 tax year. An IRS spokesperson told CCH that the reference in Notice 2010-69 to “Forms W-2 issued for 2011” and in IR-2010-103 to reporting being “optional in 2011” refers to the 2011 tax year and not to Forms W-2 issued in 2011 for the 2010 tax year. Employers are required to provide each employee with a Form W-2 annually by January 31 of the following tax year.
Reporting requirement
Coverage is treated as employer-sponsored coverage regardless of whether the employer or the employee pays for the coverage. Coverage includes coverage under any group health plan made available to the employee by the employer which is excludable from the employee’s gross income or would be excludable if it were employer-provided coverage.
The cost of coverage is determined under rules similar to those used to determine the applicable premiums for COBRA continuation requirements. “Aggregate cost” means that an employee who, for example, has health, dental and eye insurance coverage is provided the total cost and is not given a breakdown of each type of coverage.
Reporting does not apply to the cost of long-term care, accident insurance, disability income insurance, or indemnity insurance.
Interim relief
Under the PPACA, employers must report the cost of coverage on Forms W-2 issued in 2012 for the 2011 tax year. The IRS, in interim relief, stated that the reporting requirement will not be mandatory for Forms W-2 issued for 2011. In a news release, the IRS described the requirement as optional for 2011. An employer will not be penalized if it does not report the cost information on Forms W-2 issued for 2011.