The 2010 Health Care Reform Act requires that the cost of health coverage be included on an employee’s annual wage and tax statement (Form W-2) for 2012. The total cost is reported without regard as to whether the employer or the employee pays for the coverage. This reporting to employees is only intended to inform the employees of the cost of their health care coverage and has no impact on taxable wages. Reporting these costs does not make them taxable to the employee.
The reporting requirements begin with the 2012 Forms W-2 which should be prepared by the end of January 2013. Those employers who filed fewer than 250 Forms W-2 for 2011 will NOT be subject to the 2012 reporting requirement. This transition relief will continue until further guidance is issued.
In general, all healthcare costs are required to be included on Form W-2. There are certain exclusions that do not have to be reported.
Costs that do not need to be reported:
- Coverage for long-term care,
- Coverage under a separate policy for dental or vision benefits (this is in a case where a policy is offered separate from major health benefits or offered under a policy which employees must elect and pay additional amounts for the coverage),
- Coverage paid for a 2% or greater shareholder-employee of an S-corporation (health insurance premiums that were included in the income of the 2% shareholder-employee are deducted from the amount of health coverage that must be reported),
- Accident or disability insurance,
- Liability insurance, and
- Worker’s Compensation insurance.
Most employers that provide coverage under a self-insured group health plan are required to report those insurance costs. The costs can be calculated using a method called the COBRA Applicable Premium Method. Under this method, the employer calculates the premium based on the amount COBRA would have cost for the employees’ coverage over that time period. If not subject to COBRA, then no reporting is required for a self-insured employer.
The IRS has also issued guidance relating to calculating the cost of coverage under various other methods. The method selected will depend on the particular situation of your business: for example, if you are self-insured, if you are partially self-insured, of if you obtain coverage through an insurance carrier. Please contact us for a complete list of exclusion items or if you have any further questions on any of these reporting requirements.