V12-02 - 2012 W-2 Reporting: The Med-FSA and HRA?

As you know, beginning with the 2012 W-2 forms, Employers who issue 250 or more W-2 forms will need to report both the employee AND employer cost of employer-sponsored group health benefits on the 2012 W-2 forms.  This will be an informational item to be included on the W-2 and does not change the tax-status of the health benefits. 


Med-FSA W-2 Reporting of Employer Contributions

What you may not know is that, unless you are exempt (less than 250 W-2 forms), you will also need to report any Employer contributions that are used to fund the Medical Flex Spending Account (Med-FSA) benefit of your Flex Plan.   Thus, if you have an Employer-funded Med-FSA or if your company offers Credits or Benefit Dollars that can be used to fund the Med-FSA, you’ll need to report the Employer-paid portion of the Med-FSA benefit on the W-2.  IRS Notice 2012-9 Q&A 19 explains provides the following example:


Example 3: Employer maintains a § 125 cafeteria plan that offers permitted taxable benefits (including cash) and qualified nontaxable benefits (including a health FSA).  The plan offers a flex credit in the form of a match of each employee’s salary reduction contribution.  Employee makes a $700 salary reduction election for a health FSA. Employer provides an additional $700 to the health FSA to match Employee’s salary reduction election.  The amount of the health FSA for Employee for the plan year is $1,400.  The amount of Employee’s health FSA ($1,400) for the plan year exceeds the salary reduction election ($700) for the plan year.  The employer must include $700 ($1,400 health FSA amount minus $700 salary reduction) in determining the aggregate reportable cost. 


To clarify, the Employee contributions (salary reduction) to the Med-FSA do not need to be reported on the W-2, only Employer Contributions used to fund the Med-FSA benefit.


HRA W-2 Reporting – Not For The Moment!

For 2012, the Health Reimbursement Arrangement benefits are not required to be included in the W-2 Reporting requirements.  This is a temporary exemption until the IRS announces how the cost of HRA benefits should be calculated.


To summarize:

  • Health Plan cost reporting is not required if you issue less than 250 W-2s;
  • Health Plan cost reporting is required for 2012 if you issue 250 or more W-2 forms;
  • The Health Plan cost to be reported will be both the employee and employer costs combined;
  • If your Med-FSA is funded solely by employee salary reduction contributions, it’s exempt;
  • If your Med-FSA is funded by employer-paid contributions, then you’ll need to report the employer-paid cost on the 2012 W-2 forms unless you’re exempt (less than 250 W-2 forms);
  • Dental and Vision are (generally) exempt from the reporting requirements; and,
  • HRA benefits are not required to be reported for 2012.

For more information, we suggest:

http://www.irs.gov/pub/irs-drop/n-12-09.pdf

http://www.irs.gov/pub/irs-drop/n-11-28.pdf

 

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