The IRS issued Notice 2012-9 on January 4, 2012 to restate and amend Notice 2011-28, which provided interim guidance on W-2 reporting of employer-sponsored group health coverage. See the Leavitt Bulletin issued December 5, 2011. Today’s Notice clarified several ambiguous issues in the prior guidance and also provided additional guidance through new Q&As. Some of the items of most interest in Notice 2012-9 are:
- what costs employers must report for dental and vision benefits, EAPs, wellness programs, and on-site medical clinics, voluntary hospital indemnity and other fixed indemnity policies.
- in which tax year an employer should report the cost of coverage that includes December 31and continues into the following year.
- an employer’s obligation to report the costs of health coverage even if a disability carrier or third-party sick pay provider furnishes a separate Form W-2 reporting sick or disability pay.
- if future guidance is issued that requires employers to report additional amounts, such guidance will be prospective only.
Employers Subject to these Reporting Requirements
As a reminder, the W-2 reporting requirements apply to both grandfathered and non-grandfathered plans. Large employers — defined as those who issue at least 250 W-2s for 2011 — must report the aggregate cost of applicable employer-sponsored group health coverage on Form W-2 starting with the 2012 tax year. Such employers should ensure that procedures are in place now (January 2012) to adequately capture the necessary information each payroll period. The 2012 W-2s must be sent to employees by January 31, 2013 and then filed with the Social Security Administration. Smaller employers are not required to comply with these health coverage cost W-2 reporting requirements until the 2013 tax year.
Additional Detail on Selected Q&As in Notice 2012-9
Dental & vision coverage: Employers are not required to report the cost of dental and vision benefits that meet the HIPAA definition of “excepted” benefits. That means an employer is not required to report insured dental or vision benefits that are provided under a separate contract from the medical benefits; and is not required to report self-funded dental or vision benefits that participants can elect not to receive, and if the elect to receive them, they must pay an additional contribution. (Q&A 20)
EAPs, Wellness programs, on-site medical clinics: Employers are not required to report the cost of coverage for an EAP, wellness program or on-site medical clinic if the employer does not charge a premium for such coverage under COBRA to qualified beneficiaries. (Q&A 32)
Voluntary hospital indemnity and other fixed indemnity policies: Employers are not required to report the cost of such coverage if it is funded by the employee on an after-tax basis; however, employers must report the cost of such coverage if it is provided by the employer on an excludible or pre-tax basis. (Q&As 37 &38)
Employer may elect to report costs of coverage it is not required to include. An employer may elect to report the cost of coverage under a Health Reimbursement Account (HRA), an EAP, wellness program, on-site medical clinic or multi-employer plan, provided the coverage constitutes applicable employer-sponsored coverage and otherwise meets the requirements for methods of calculating costs. (Q&A 33)
Reporting year if coverage period spans two tax years: If the payroll period for which coverage is provided includes December 31and continues into the following year, the employer can either report all costs on the W-2 for the first year (i.e., the year including December 31), report all costs on the W-2 for the subsequent year, or allocate costs on a reasonable basis between the two years. The same method must be used for all employees. (Q&A 36)
Form W-2 furnished by an employer must include reportable health coverage costs even if employee also receives a W-2 from a disability carrier. Even if an employee was off work all or part of the year due to sickness or disability and receives a W-2 from the third-party sick pay provider or disability insurer, that W-2 is not required to include the cost of employer-sponsored health coverage. If the employer issues a W-2, it must include reportable health coverage costs for the entire year, even for the periods for which the employee received sick or disability pay from a third party. (Q&A 39)
Future guidance will be prospective. If future guidance is issued that requires employers to report additional amounts, such guidance will be prospective only and will not apply until January 1 of the calendar year beginning at least six months after the date the guidance is issued. (Section IV)