One of the provisions of the Patient Protection and Affordable Care Act (Health Care Reform) that passed last Spring, was the requirement that the cost of employer-sponsored health coverage be reported on the W-2 forms beginning in 2011.  In IRS Notice 2010-69 released in October 2010, the IRS announced that this requirement would be deferred until 2012.

Reporting the “aggregate cost of employer-sponsored coverage” will be: 

• Optional for 2011 W-2 forms
• Required for 2012 W-2 forms

IRS Notice 2010-69 also clarified that the term “aggregate cost of employer-sponsored coverage” will have a similar meaning as the COBRA definition of “applicable premium.” 

IMPORTANT:

Health Reimbursement Arrangements (HRA)

The “aggregate cost” of the HRA benefits will need to be reported on the W-2 in 2012.  We are currently awaiting guidance from the IRS on how this is to be calculated but, using the “applicable premium” definition; it appears to be based upon utilization, rather than accrual.  For example, if you provide an HRA benefit of $1000 that has an overall 50% utilization (only 50% of the available benefits are actually paid or spent), then the value of the $1000 HRA benefit would be reported as $500.

Employer Contributions to the Medical Flex Spending Account (Med-FSA)

While employee contributions to the Med-FSA will not need to be reported, the “applicable premium” cost of employer-paid Med-FSA benefits will need to be reported beginning in 2012.

THE RUMOR MILL:

We have seen a couple of emails passed among our family and friends that announced that the W-2 reporting of health coverage would result in the benefits becoming taxable.  That is not the case – at least not at this time.  While the so-called “Cadillac Plan” excise tax may become an issue in the future, that aspect of the law will not take effect until 2018.  For now, this is an information-only item on the W-2.

The delay in enforcement of the W-2 Reporting Requirement is excellent news because there are many questions left unanswered and it provides employers, administrators, payroll systems and services and even the IRS with the time needed to gear up for the change.

For your reference, the following are a summary of the current reporting requirements for your W-2 forms in relation to your benefit plans:

BOX 10 – DCAP      The Dependent Care Assistance Plan (DCAP) contributions are reported as an informational item in Box 10.  If your company contributes to the DCAP, you will report the combined total of all employee and employer DCAP contributions.  You will also need to include in Box 10 the Fair Market Value of any employer-provided/sponsored day care facilities.  Amounts in excess of $5000 need to be reported as income in boxes 1, 3 & 5.

BOX 12 - Health Savings Account    The total of employer contributions (including employee pre-tax Health Savings Account (HSA) contributions made in the employer’s Flex Plan) to a Health Savings Account are to be reported in one of the 12 Boxes as a code W.

BOX 12 - Group Term Life     The Table I cost of group term life coverage in excess of $50,000 in one of the 12 Boxes as a code C and as taxable income in boxes 1, 3 & 5.

FLEX PLAN BENEFITS & THE W-2     While you have the option, you are not required to report employee pre-tax Flex Plan contributions in Box 14 of the W-2.   The only Flex contributions that must be reported on the W-2 are the DCAP in Box 10 and HSA in Box 12. 

PRE-TAX EMPLOYEE FLEX PLAN CONTRIBUTIONS are not reported in:

• Box 1 of the W-2 “Wages, tips, other compensation”
• Box 3 of the W-2 “Social Security wages”
• Box 5 of the W-2 “Medicare Wages & tips”

While individual states may have varying reporting requirements, in California, pre-tax employee contributions to the Flex Plan benefits are not reported in Box 16 “State wages, tips.” 

Please refer to your tax professional, the W-2 Instructions (www.IRS.gov) and/or your State Tax Reporting Agencies for full details and clarification.

This blog is presented for the consideration of our clients and business associates.  It is not intended to be legal, accounting, tax or professional advice. This information is not directed to any specific situation or individual and we do not assume liability for the use of or reliance on this information.  FlexToday respects your privacy and will make every effort to preserve your privacy but we do not and will not assume responsibility or liability for the content or use of any information you choose to post to this blog.  The comments posted on this blog are not necessarily those of FlexToday, Inc. or its employees or representatives.   This is a brief version of our privacy policy. For more information on our privacy policy as well as other policies and procedures, please refer to our main website, www.FlexToday.com. 

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