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Public Policy

Health Care Reform Includes Form W-2 Reporting Requirement

Employers will need to focus quickly on new Form W-2 reporting requirement under health care reform.

Health care reform requires employers to calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees' Form W-2s. Although the new rule applies for employees' tax years beginning after Dec. 31, 2010, payroll systems need to be updated for this change by January 2011. This deadline is imposed because employees are entitled to request their Form W-2s early if they terminate employment during the year.
As a result of this requirement, most Form W-2s for tax year 2011 will be issued in January 2012. Form W-2s reflecting the new health insurance information must be available no later than Feb. 1, 2011, in the event that an employee requests one.
Plans for which coverage costs must be reported under the new requirement include:

  • Medical plans.
  • Prescription drug plans.
  • Executive physicals.
  • On-site clinics if they provide more than de minimus care.
  • Medicare supplemental policies.
  • Employee assistance programs.

Coverage under dental and vision plans is included unless they are "stand-alone" plans. However, the cost of coverage under health flexible spending accounts, health savings accounts and specific disease or hospital/fixed indemnity plans is excluded from the reporting requirement.

How to Value Plans

The aggregate cost of coverage under the plans (including the employee and employer portions of cost) is determined under rules similar to COBRAminus the 2 percent administrative charge permitted under COBRA. Government regulations regarding how to value plans for COBRA purposes were, as of this writing, expected shortly. Presumably, any regulations issued would apply to COBRA and to the new Form W-2 reporting requirements. One challenge for employers might be that some of the plans covered by the new reporting requirement, such as on-site medical clinics, are not plans that they have previously valued for COBRA purposes. Now, employers will need to come up with reportable values for coverage provided under these programs.

Monthly Coverage

The new reporting requirement appears to require a monthly calculation of coverage. However, some employees might have less than a month's coverage if their coverage starts or stops during the month. Future regulations might clarify how to report coverage of less than a full month.
Reporting is required for employees but also seems to apply to former employees who are provided with health coverage, including early retirees, retirees, terminated employees on COBRA and surviving spouses. Many of these individuals would not typically receive a Form W-2 from the employer, at least not for taxable years following their termination of employment. Accordingly, if this interpretation is correct, an employer's overall W-2 reporting requirements may increase dramatically. Employers should begin working with their payroll departments immediately to ensure compliance with these new requirements.

HIRE Act: Questions and Answers for Employers

Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (qualified employees).
The first, referred to as the payroll tax exemption, provides employers with an exemption from the employers 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

Please visit the following website for in-depth information.

http://www.irs.gov/businesses/small/article