IRS Releases W-2 Group Health Guidelines

IRS Releases W-2 Group Health Guidelines 

By ALLISON BELL

Published 3/30/2011 

Most employers that send out more than 250 W-2 wage tax withholding forms in 2012 will have to provide information about how much they spend on the employees' group health coverage.

Bush administration officials had suggested that employers ought to put group health expenditure information on W-2 forms, and Congress included the requirement in Section 9002 of the Patient Protection and Affordable Care Act (PPACA), a component of the Affordable Care Act. PPACA Section 9002 added Section 6051(a)(14) – the group health W-2 reporting requirement – to the Internal Revenue Code.

“Nothing in Section 6051(a)(14), this notice, or the additional guidance that is contemplated under § 6051(a)(14), causes or will cause otherwise excludable employer-provided health care coverage to become taxable,” IRS officials say in an announcement of the 2012 W-2 group health reporting guidelines, which are described in IRS Notice 2011-28.

But U.S. Treasury Department officials have been noting since the days of the Bush administration that group health “tax expenditures” – federal income tax revenue foregone as a result of the group health tax exclusion – cost the federal government more than $100 billion per year.

An Affordable Care Act provision is supposed to impose a “Cadillac plan” excise tax on some high-cost plans starting in 2018.

The new Section 6051(a)(14) will apply to insured employers that send more than 250 W-2 forms and to employers with self-funded plans that are subject to COBRA benefits continuation requirements, IRS officials say.

Employers can report group health expenditures this year, on the 2011 W-2 forms, on a voluntary basis.

The IRS has provided a list of questions and answers employers and their benefits and tax advisors can use to provide the required group health cost information for 2012.

The group health cost figure will not include contributions for multiemployer plan coverage or for expenditures on health reimbursement arrangement contributions or health savings account contributions. The figure would include dental or vision coverage costs only if dental or vision coverage were integrated into the group medical coverage.

The cost figure could include some health flexible spending account (FSA) contributions, if “the amount of the health FSA for the plan year exceeds the salary reduction elected by the employee for the plan year,” officials say.

In that case, the FSA amount included in the “aggregate reportable cost” would be “the amount of that employee’s health FSA minus the employee’s salary reduction election for the health FSA,” officials say.