While smaller employers have been given a reprieve from having to report the cost of employees’ health insurance on W-2s, larger employers weren’t as lucky. Here are the feds’ new guidelines for complying with the requirement.
As per the new guidelines, employers with 250 or more employees in 2012 have to report individual health insurance costs on those workers’ W-2s (which will be issued in 2013).
Small employers (those issuing fewer than 250 W-2s), don’t have obey the health cost reporting requirements until 2013 W-2s are issued. The Internal Revenue Service (IRS) also said the reporting deadline for small employers may be pushed back even further.
Calculating what to report
Whether you’re classified as a small or large employer under these guidelines, here are the rules you’ll have to follow when your time comes to report:
- The amounted reported on an employee’s W-2 must include both the employer and employee paid portions of healthcare coverage — whether pre-tax, post-tax or taxable.
- The reported cost must include any portion of the cost of coverage that is includible in an employee’s income — like domestic partner coverage.
- For self-funded plans the reportable cost is generally calculated using the COBRA premium method — so the value of the coverage equals the COBRA premium applicable to that coverage.
- For insured plans the cost can be reported as being equal to the premium charged by the insurer for that employee’s coverage — whether its single or family coverage.
- The cost of coverage will be reported in box 12 of the W-2 form using code DD.
Some other guidelines employers should know:
- Employers are not required to report the cost of coverage to retirees or other former employees who are not issued W-2s.
- Employers have a few options for reporting costs when tricky situations arise — like when the reportable cost changes during the calendar year (likely for non-calendar year plans) or an employee terminates employment during the plan year. The most important requirement in calculating costs when situations like these pop up is that the same calculation method be used for all employees affected.
- It’s recommended that prior to distributing W-2s employers explain to employees that the reporting requirements do not make the benefits taxable.
Info: For a complete breakdown of the new regulations, see IRS Notice 2011-28.