• IRS Releases W-2 Reporting Guidance
  • April 5, 2011 | Author: Susan J. Freed
  • Law Firm: Davis, Brown, Koehn, Shors & Roberts, P.C. - Des Moines Office
  • Earlier today the IRS released Notice 2011-28 outlining guidance implementing the Affordable Care Act’s requirement that employers report the aggregate cost of employer-provided health coverage on an employee’s Form W-2.  A copy of the guidance can be accessed at http://www.irs.gov/pub/irs-drop/n-11-28.pdf.

    The guidance is helpful in clarifying what information must be reported by the employer and how the employer calculates the aggregate cost of the coverage.  Most importantly, however, the guidance provides a number of exemptions to the reporting requirement.  While the IRS is careful to state that these exemptions are “transitional relief” and future guidance may limit the availability of these exemptions, any such limitation on the availability of an exemption will be prospective only and will apply after the current effective date of the reporting rules (2012 W-2).  Specifically, the guidance exempts the following from the reporting requirements:

    • Employers who file fewer than 250 W-2 Forms in the preceding calendar year;
    • Employers who are part of a multiemployer plan; and
    • Employers issuing a W-2 midyear to a terminated employee at the employee’s request

    Also considered “transitional relief”, the IRS guidance states that currently it does not view the following coverage as constituting employer sponsored coverage that must be reported on a W-2:

    • Limited scope dental/vision benefits
    • Health Reimbursement Arrangements (even when the HRA is the only coverage provided to the employee)
    • Health Savings Accounts
    • Archer MSAs
    • Long Term Care Insurance
    • Employee Salary Reductions to Health Flexible Spending Account

    Employers should note, however, that with respect to health flexible spending accounts offered through a cafeteria plan,  amounts contributed by the employer to the Health FSA are considered coverage that must be reported on the W-2 when the amount of  the health FSA exceeds the salary reduction elected by the employee.  With respect to health coverage provided to retirees or other individuals who receive no compensation from the employer necessitating a W-2, the guidance states the reporting requirement will not apply.

    The IRS guidance also specifies several times that the reporting requirement is not to tax the employee on the benefits provided but solely to provide the employee with information regarding the cost of his/her employer sponsored health insurance coverage.