Draft Form Issued for Reporting Health Care Costs on W-2s

Requirement made optional for 2011

By SHRM Online staff October 12, 2010

The IRS issued a draft Form W-2for 2011, which employers use to report wages and employee tax withholding. The IRS also announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable.

Susan H. Sherman, an employee benefits attorney at law firm Miller Johnson, shared these comments on the IRS action:

"On Oct. 12, 2010, the IRS delayed implementation of the requirement to report the value of health insurance on employees' IRS Form W-2 for one year. Reporting of these amounts will now first be required for W-2s issued for 2012.

"The IRS stated it delayed the requirement to give employers more time to update their payroll systems and procedures. It was also likely delayed because the IRS has not yet issued guidance regarding how the aggregate value of the coverage is to be calculated.

"The aggregate value of the coverage is supposed to be determined under rules similar to the rules used to calculate the COBRA premium for the coverage.The IRS is currently in the process of developing and issuing regulations regarding how to calculate the COBRA premium, and it makes little sense to implement the reporting requirement before the COBRA premium rules are issued.

"The IRS also issued a draft updated Form W-2 for 2011. The instructions to the draft form state that any employer wanting to report the value of health insurance on a 2011 Form W-2 can do so in Box 12, using Code DD.

"The IRS said it would issue further guidance on this reporting requirement before the end of the year."

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