The U.S. Internal Revenue Service (IRS) issued Notice 2011-28 on March 29, 2011—interim guidance to employers regarding informational reporting on each employee's annual Form W-2 of the cost of the health insurance coverage they sponsor for employees.
The IRS emphasized that this new reporting to employees is for their information only, to inform them of the cost of their health coverage, and does not cause excludable employer-provided health coverage to become taxable. Employer-provided health coverage continues to be excludable from an employee's income and is not taxable.
The Patient Protection and Affordable Care Act (PPACA), enacted in March 2010, provides that employers are required to report the cost of employer-provided health care coverage on the Form W-2. Notice 2010-69, issued in October 2010, made this requirement optional for employers for the 2011 Form W-2 (generally furnished to employees in January 2012).
Relief for Small Employers
In its new guidance, the IRS provided further relief for small employers (those filing fewer than 250 W-2 forms) by making this requirement optional for them at least in tax year 2012 (i.e., for 2012 Forms W-2 that generally would be furnished to employees in January 2013) and to continuing this optional treatment for smaller employers until further guidance is issued.
Using a question-and-answer format, Notice 2011-28 provides guidance for employers that are subject to this requirement for the 2012 Forms W-2 and those that choose voluntarily to comply with it for 2011 or 2012. The notice includes information on how to report, what coverage to include and how to determine the cost of the coverage.
The IRS is requesting comments on this interim guidance by June 27, 2011.
W-2 Reporting Is a Benefits Communications Opportunity
"Use health care reform as an opportunity to better inform employees about their health and wellness benefits," recommended Jennifer Benz, CEO of Benz Communications.
"The intent of requiring the value of employer-provided health care to be reported on employees' W-2 statements is to help people understand the true cost of coverage," she explained. "Many companies have not communicated this information before, and their employees are going to have sticker shock when they see how much the cost of their health care really is. But this should be used as an opportunity to talk about why health care is so expensive"—raising issues such as unnecessary overutilization of low-value services—"and the investment that the company is making in employee benefits."
It's also a chance to address some of the myths that surround the W-2 reporting requirement. "There are a lot of Internet rumors that say W-2 cost reporting means health coverage will now be taxed, which is not true," Benz noted. "So while W-2 reporting is an opportunity to communicate with employees about the value of their health care benefits, "employers are going to have a lot of rumors to dispel at the same time."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Employer-Provided Health Coverage Informational Reporting Requirements: Frequently Asked Questions, U.S. Internal Revenue Service, March 2011
IRS Guidance on Form W-2 Reporting for Costs of Employer-Provided Coverage, Littler Mendelson P.C., April 2011
Draft Form Issued for Reporting Health Care Costs on W-2s for 2011, SHRM Online Benefits Discipline, October 2010
Start Planning Now for New W-2 Reporting Requirement, SHRM Online Benefits Discipline, October 2010
IRS Delays Form W-2 Reporting Requirement Under PPACA, SHRM Online Legal Issues, October 2010
Taxes: What are the new reporting requirements for W-2s under PPACA?, SHRM HR Q&As, July 2010
Health Care Reform Includes Form W-2 Reporting Requirement, SHRM Online Benefits Discipline, May 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page