IRS Provides Interim Guidance on Health Cost Reporting Requirements

Internal_Revenue_Service_logo.pngThe IRS has issued new interim guidance for employers regarding their obligation to report to employees the cost of their employer-sponsored group health plan coverage on the annual Form W-2, as required under the new health care law. In October of 2010, the IRS issued a separate notice making this obligation optional for 2011 Forms W-2 (furnished to employees in January 2012) in order to give employers more time to make changes to their payroll systems and procedures to comply with this health care cost reporting requirement. The interim guidance is contained in the new IRS Notice 2011-28, (pdf) which emphasizes that the reporting to employees is for informational purposes only, and therefore will not subject the excludable health cost amounts to taxation. The guidance further explains that employers are not required to report the cost of health coverage to employees prior to January 2013 (on forms required for the calendar year 2012), although they may voluntarily do so beforehand. The guidance also provides that employers required to file fewer than 250 Forms W-2 for the year 2011 will not be held to this requirement for the 2012 reporting year until further guidance is provided.

A detailed discussion of the new reporting requirement is contained in section II of the Notice. Section III contains the interim guidance, presented in question and answer format. The guidance clarifies that the aggregate reportable cost of health coverage includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee. This guidance identifies the employers subject to the reporting requirements; provides the methods for reporting the cost of the coverage on the Form W-2; defines certain terms related to the cost of coverage required to be reported on the Form W-2; sets forth the types of coverage the cost of which is required to be included in the amount reported on the Form W-2; discusses several calculation methods that may be used to determine the cost of the coverage; and addresses a number of other issues employers may encounter in determining the cost of the health coverage. Section IV provides the transition relief for certain small employers and with respect to certain types of employer-sponsored coverage. The final section of the Notice requests public comments on any portion of the guidance, including any areas to be addressed in future guidance or regulations on this reporting requirement.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.