Health care reform created a new reporting requirement intended to provide employees more information about the cost of their health coverage. Employers who filed 250 or more Forms W-2 for the 2012 tax year (250 Forms filed in January 2013) must report the total value of certain employer-sponsored health benefits on employees’ 2013 Form W-2 in Box 12 with Code DD. Employers should be thinking now about their obligation to report the cost of health coverage when the 2013 Forms W-2 are issued in January 2014.
Which Employers Must Report
All employers (except certain military employers) that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement if they issued 250 or more Forms W-2 in the prior calendar year. An employer who issued 250 or more Forms W-2 with respect to 2012 must report for the 2013 Form W-2. Other employers may choose to voluntarily report coverage cost information.
What Coverage Must Be Reported
An employer will have to determine the coverage that must be reported on the Form W-2 if the employer is required to report or voluntarily decides to report. The IRS has explained that reporting applies to “applicable employer-sponsored coverage.” This is generally coverage under a group health plan that an employer makes available to an employee that is not taxable to the employee.
Medical plan coverage is included in the value of coverage that must be reported. Free-standing dental and visions plans are not subject to the reporting requirement if the plans are excepted from HIPAA, are not integrated into another group health plan or give participants the choice of declining the coverage or electing it and paying an additional premium. Employers do not have to report the cost of an EAP, wellness program or on-site medical clinic if the employer would not charge a premium for the coverage to COBRA participants. Health reimbursement arrangements and indemnity insurance paid with after-tax dollars does not have to be reported. Health flexible spending accounts funded with employee contributions, only, are not reported, but a reporting obligation may arise if an employer contributes to the FSA or otherwise provides flex-dollars through a Code section 125 plan. Self-insured plans of employers not subject to COBRA or similar continuation requirements (such as church plans) are not reported.
Determining the Value to Report
The aggregate reportable cost includes both the employer and employee-paid portion of coverage, regardless of whether the employee paid for that coverage through pre-tax or after-tax contributions. It includes the cost expended for coverage of the employee, as well as for any person covered under the plan because of a relationship to the employee (i.e., Employee coverage, as well as Dependent/Family coverage).
Aggregate reportable cost may be calculated in one of a few different ways. Employers will likely report using a COBRA applicable premium method. Alternatively, (1) an employer that is determining the cost of coverage in an insured plan may calculate the reportable cost using the premium charged method; and (2) an employer that subsidizes the cost of coverage or that determines the cost of coverage for a year by applying the cost of coverage in a prior year may calculate the reportable cost using a modified COBRA premium method. There are special rules for employers that charge employees a composite rate for coverage (i.e., the same premium for different types of coverage).
Under the COBRA method, the employer reports an amount equal to the COBRA applicable premium for the coverage period. This is the cost of coverage for non-COBRA beneficiaries (including both employer and employee contributions), but excluding any administrative fee added on top of the COBRA-calculated rate. The MyEnroll reporting tool uses the COBRA method.
Under the premium charged method, an employer reports the cost of insured coverage using the premium charged by the insurer for the employee’s coverage.
To use the modified COBRA premium method, the employer must subsidize the cost of COBRA coverage or charge COBRA beneficiaries a prior year’s rate. If this applies, the employer may determine the reportable cost for a period based upon a reasonable good faith estimate of the COBRA premium for the period.
If an employer charges a composite rate (charges for a single coverage class under the plan, or charges the same premium for all coverage), the employer may calculate and use the same reportable cost for the single class of coverage or for the different types of coverage, provided the method is applied consistently.
Penalties
Penalties for not reporting may be up to $50 per filing, with a maximum of $250,000 per year. Penalties may be reduced for prompt correction.
BAS’ MyEnroll.com Form W-2 Reporting Services
BAS’ MyEnroll.com has a useful reporting tool available to assist employers with their Form W-2 reporting requirements, using the COBRA method. BAS offers self-service access to a report of all the health coverage data elements necessary to provide a payroll system with the required reporting values. Please contact your account manager or info@BASusa for more information about the BAS Form W-2 Reporting Service.
