(From the January 9, 2012 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)
Form W-2 Reporting on Group Health Plan Coverage Is Modified
The IRS tweaked its guidance on the reporting of employer-provided group health plan coverage on Form W-2, a new requirement that generally applies beginning in 2012. The new Notice provides more certainty to employers in setting up their reporting systems in order to generate the 2012 Form W-2 in January 2013.
New Notice 2012-9 amends and restates Notice 2011-28. The core requirements remain the same, with certain notable clarifications and modifications, as described below.
- Small Employer Relief — Employers that are required to file fewer than 250 Forms W-2 for 2011 are exempt from the new reporting requirement for 2012. Notice 2012-9 clarifies that this exemption is based on the number of 2011 Forms W-2 the employer is required to file without regard to the use of an agent under Code § 3504.
- Related Employers — If an employee is concurrently employed by related employers and one of the employers serves as a common paymaster, the common paymaster is required to include the aggregate reportable cost of coverage that is provided to the employee by all the employers for whom it serves as common paymaster. The Notice clarifies that, if the related employers do not compensate through a common paymaster they may either report the entire aggregate reportable cost on one Form W-2 or allocate the cost among the concurrent employers using any reasonable method.
- Dental and Vision Plans — Coverage under certain dental or vision plans is not required to be included in the aggregate reportable cost. The Notice modifies the standard for determining when such coverage is excludable. Previously, dental or vision coverage was excludable if it was not integrated into a group health plan that provides additional benefits. Now the coverage is excludable if it satisfies the standard for excepted benefits under HIPAA. Generally, this means that the dental or vision benefits, in order to be excepted benefits, must be offered under a separate policy, certificate or contract of insurance — or the participants must have the right to decline the benefits (and, if they elect coverage, are required to pay an additional premium).
- Cost of Coverage Includible in Income — The Notice clarifies that the cost of coverage that is includible in the income of a highly compensated individual under Code § 105(h) — or payments or reimbursements of health insurance premiums that are includible in the income of a two percent (2%) shareholder-employee of an S corporation — are not included in the aggregate reportable cost.
- Calculating Reportable Cost — Composite rates can be used to determine the aggregate reportable cost. The Notice clarifies that, if an employer is using a composite rate for active employees but not for determining the applicable COBRA premium, it may use either the composite rate or the applicable COBRA premium to determine the aggregate reportable cost of coverage — as long as the same method is used consistently for all active employees and is used consistently for all qualifying beneficiaries receiving COBRA coverage.
- Employee Assistance Programs — The new Notice addresses coverage under an employee assistance program, wellness program, and on-site medical clinic, and clarifies that such programs are subject to the reporting requirements only if they are group health plans under Code § 5000(b)(1). If so, the coverage is required to be included in the aggregate reportable cost of coverage if the employer charges a premium for COBRA (or other Federal) continuation coverage. Employers that do not charge such premiums — or that are not subject to COBRA (or other Federal) continuation coverage requirements — are not required to include the cost of coverage in the aggregate reportable cost of coverage.
- Permissible Inclusion — Employers are permitted to include the cost of coverage that is not required to be included — such as coverage under a health reimbursement account, a multiemployer plan, an employee assistance program, wellness program, or on-site medical clinic — in the aggregate reportable cost as long as the coverage constitutes applicable employer-sponsored coverage (i.e., is coverage under a group health plan that is made available by an employer to an employee and is excludable from the employee's gross income under Code § 106) and the calculation of the cost otherwise meets the requirements.
- Programs with Other Benefits — If a program provides benefits that constitute applicable employer-sponsored coverage and other benefits, the employer may use any reasonable method to determine the cost of the portion that constitutes applicable employer-sponsored coverage. Moreover, if that portion is only incidental in comparison to the other portion, the employer is not required to include either portion in the aggregate reportable cost.
- December 31 Information — The aggregate reportable cost may be based on the information available to the employer as of December 31. Elections or notifications made in the subsequent year that have a retroactive effect (e.g., of a divorce in the prior year) need not be taken into account in calculating the aggregate reportable cost. Further, employers are not required to provide a Form W-2c if a Form W-2 has already been provided.
- Coverage Period Spanning December 31 — For coverage periods that include December 31 but span into the next year, employers have three options: (1) treat the whole coverage period as provided for the current year, (2) treat the whole coverage period as provided for the subsequent year, or (3) allocate the cost of coverage between the two years using any reasonable approach (which must generally relate to the number of days in the coverage period that fall within each of the years). Any chosen method must be applied consistently to all employees.
- Indemnity Plans — The cost of coverage under a hospital indemnity or other fixed indemnity insurance (or the cost of coverage for only a specified disease or illness) must be included in the aggregate reportable cost if the employer makes any contribution to the cost of coverage that is excludable under Code § 106 or the employee purchases the policy on a pre-tax basis under a Code § 125 cafeteria plan. In contrast, if the payment for the benefits is includible in the employee's gross income, the cost of coverage is not required to be included in the aggregate reportable cost.
- Third Party Sick Pay Providers — Third-party sick pay providers are not required to report aggregate reportable cost on Form W-2.
The Notice makes clear that certain of these provisions that are aimed at facilitating compliance may not apply under future guidance (e.g., the exemption for employers filing fewer than 250 Forms W-2, for dental and vision plans, for employee assistance programs, etc.). However, it makes clear that any such future guidance will apply prospectively only and will not apply to the 2012 Forms W-2.
|The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.
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Copyright 2012, Deloitte.
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