Notice 2011-28, 2011-16 IRB; IR 2011-31
A new Notice provides interim guidance significantly relaxing the Patient Protection and Affordable Care Act's (PPACA's) information reporting requirement for employer-sponsored health coverage. Under the new guidance, reporting continues to be voluntary for all employers in 2011, and it will be voluntary for small employers until further guidance is issued, but at least through 2012. The Notice also provides guidance on the nuts and bolts of the information reporting rule for employers who will be subject to it, and those employers that choose to voluntarily comply with it.
Background. For tax years beginning on or after Jan. 1, 2011, Code Sec. 6051(a)(14), which was added by PPACA §9002, generally provides that the aggregate cost of the applicable employer-sponsored health insurance coverage (as defined in Code Sec. 4980I(d)(1)) must be reported on Form W-2. For this purpose, the aggregate cost is to be determined under rules similar to the rules of Code Sec. 4980B(f)(4), referring to the definition of the “applicable premium” under the rules providing for COBRA continuation coverage. Code Sec. 6041(a)(14) does not, however, apply to reporting the amount contributed to an Archer MSA or the health savings account of an employee or the employee's spouse, any salary reduction contributions to a flexible spending agreement, or certain “excepted benefits” described in Code Sec. 9832(c)(1) including worker's compensation and disability income insurance.
In Notice 2010-69, 2010-44 IRB 576, IRS made this new reporting requirement optional for all employers for the 2011 Forms W-2 (which would generally be given to employees in January 2012).
Interim guidance. Notice 2011-28 provides further relief for small employers (i.e., those filing fewer than 250 Forms W-2) by making Code Sec. 6051(a)(14) reporting optional for health coverage provided through at least 2012, or until further guidance is issued by IRS. In other words, small employers won't have to report the cost of health care coverage on any forms required to be furnished to employees before January 2014, at the earliest.
Notice 2011-28 also provides additional guidance, in question and answer (Q&A) format, to employers who are subject to the information reporting requirement for the 2012 Forms W-2, and to employers that choose to voluntarily comply with it for either 2011 or 2012. The Q&As are generally categorized as follows: general requirements; methods for reporting the cost of coverage on Form W-2; definitions of terms relating to the cost of coverage required to be reported; the types of coverage for which the cost is required to included on Form W-2; calculation methods used to determine the cost of coverage; and issues that an employer may have to address in determining the cost of coverage. These subjects are briefly addressed below:
... In general. IRS emphasizes that Code Sec. 6051(a)(14)’s new reporting requirement is purely information and has no effect on whether any particular coverage is excludible under Code Sec. 106 or otherwise. Rather, the purpose of the reporting is to “provide useful and comparable consumer information to employees on the cost of their health care coverage.” (Q&A-2)
... Employers subject to the reporting requirement. Except as otherwise provided, all employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, beginning with the 2012 Forms W-2. This includes governmental entities and religious organizations, but not Federally recognized Indian tribal governments. However, employers that file 250 or fewer Forms W-2 for the preceding year are exempted from the reporting requirement for 2012 Forms W-2 (and possibly later, depending on when IRS issues further guidance). (Q&A-3)
... Method of reporting on the Form W-2. The aggregate reportable cost is reported in box 12 of Form W-2, using code “DD.” (Q&A-5) An employer is not required to issue a Form W-2 with the aggregate reportable cost to an individual for whom the employer is not otherwise required to file a Form W-2 (Q&A-9), nor is the employer required to report the total aggregate reportable costs attributable to its employees on Form W-3. (Q&A-10) IRS also provided guidance relating to employees who have coverage provided by the employer for a period during the calendar year after the employee terminated employment (Q&A-6); individuals with multiple employers during the year, or with multiple employers who are related and have a common paymaster (Q&A-7); and individuals who transfer to a new employer that qualifies as a successor employer under Code Sec. 3121(a)(1) (Q&A-8).
... Aggregate cost of applicable employer-sponsored coverage. The “aggregate cost” of applicable employer-sponsored coverage is the total cost of coverage under all “applicable employer-sponsored coverage” provided to an employee (Q&A-11), which is defined as coverage under any “group health plan” made available to the employee that is excludable under Code Sec. 106. (Q&A-12) A “group health plan” refers to a plan of, or contributed to by, an employer or employee organization to provide health care to current and former employees, others currently or formerly associated with the employer in a business relationship, or their families. (Q&A-13) The “aggregate reportable cost” includes both the portions paid by the employer and the employee, regardless of whether the employee's contributions were made on a pre-tax or after-tax basis (Q&A-14), and it also includes the cost of coverage includible in the employee's gross income. (Q&A-15)
... Cost of coverage required to be included in the aggregate reportable cost. Except as otherwise provided, the cost of coverage under all applicable employer-sponsored coverage is included in the aggregate reportable cost, except contributions to an Archer MSA or Health Savings Account, and any salary reduction election to a flexible spending arrangement. (Q&A-16) The aggregate reportable cost does not include: the amount that an employer contributes to a multiemployer plan (Q&A-17); the cost of coverage under a Health Reimbursement Arrangement (Q&A-18); the cost of coverage under a dental or vision plan that isn't integrated into a group health plan (Q&A-20); the cost of coverage provided under a self-insured group health plan that isn't subject to any federal contribution coverage requirements (Q&A-21); or the cost of coverage provided by the federal government, the government of any State or political subdivision thereof, or any agency or instrumentality of any such government, under a plan maintained primarily for members of the military and their families (Q&A-22). If an employer offers a health flexible spending arrangement (FSA) through a Code Sec. 125 cafeteria plan, the amount of the health FSA required to be included is reduced (not below zero) by the employee's salary reduction contribution. (Q&A-19)
... Methods of calculating the cost of coverage. An employer may calculate the reportable cost under a plan using: the COBRA applicable premium method (reportable cost for a period equals the COBRA applicable premium for that coverage during that period) (Q&A-25); the premium charged method (the premium charged by the insurer for an employee's coverage during the applicable period) (Q&A-26); or the modified COBRA premium method (an employer that subsidizes the cost of COBRA determines the reportable cost based on a good faith estimate of the COBRA applicable premium for that period) (Q&A-27). An employer doesn't have to use the same method for every plan, but must use the same method for every employee receiving coverage under a particular plan. (Q&A-24)
... Other issues relating to calculating the cost of coverage. IRS also provides guidance on: how an employer that charges a composite rate to an employee calculates its reportable cost (Q&A-28); how the reportable cost must account for increases or decreases to the cost during the year (Q&A-29); and how the reportable cost under a plan is calculated if an employee commences, changes or terminates coverage during the year (Q&A-30). IRS also clarified that the reportable cost under a plan must be determined on a calendar year basis.
References: For reporting of health insurance on Form W-2, see FTC 2d/FIN ¶S-3152; United States Tax Reporter ¶60,514; TaxDesk ¶812,002; TG ¶60301.