Update: IRS Issues Interim Guidance
On Jan. 3, 2012, the Internal Revenue Service (IRS) issued Notice 2012-9, with interim guidance on meeting the requirement under the Patient Protection and Affordable Care Act (PPACA) to report on employees' W-2 forms the cost of their group health insurance coverage. To learn more, see the SHRM Online article IRS Issues Guidance on Reporting Health Coverage Cost on Forms W-2.
The ERISA Industry Committee (ERIC), a not-for-profit representing large U.S. employers that sponsor employee benefit plans, has asked the U.S. Treasury Department and Internal Revenue Service (IRS) not to impose unnecessary burdens on employers in implementing the reporting requirements for the cost of group health plan coverage on W-2 forms.
IRS Notice 2011-28, issued on March 29, 2011, provides guidance on how to report the cost of health coverage on an employee's W-2, based on the requirement added to the Internal Revenue Code by the Patient Protection and Affordable Care Act (see the SHRM Online article "IRS Issues Guidance on W-2 Reporting of Health Care Costs.") Originally, this reporting was scheduled to take effect for the 2011 tax year, but under Notice 2011-28 the government delayed the deadline, requiring large U.S. employers to report the cost of health insurance coverage on 2012 Forms W-2 (that is, for W-2s provided in January 2013), while small employers have an extra year, reporting on 2013 W-2s (provided in January 2014).
In its July 15, 2011, comment letter, ERIC commended the agencies for postponing the original reporting deadline and for recognizing the difficulties that employers will face in complying with the new reporting requirement.
Retirees and Former Employees
In addition, ERIC offered several recommendations to ease the new W-2 reporting burdens, particularly with respect to former employees that receive post-separation compensation from an employer and with regard to retirees in particular. The group urged that an employer not be required to include the cost of health coverage on W-2s provided to these individuals, contending that such a requirement would impose substantial burdens on employers while conferring no additional benefit on former employees.
“In a group health plan covering thousands of retirees, the employer will have to create a special system for identifying the unpredictable instances in which a retiree receives Form W-2 income and will have to create a data-reporting connection between the retiree health plan administrator’s recordkeeping system and the employer’s payroll system solely to deal with these isolated cases,” wrote ERIC President Mark Ugoretz and Gretchen K. Young, ERIC's senior vice president for health policy.
Dental and Vision Plans
In addition, ERIC recommended that dental and vision plans be exempt from the reporting requirements if the facts and circumstances indicated that the plan was not an integral part of a group health plan. ERIC contended that the current test for determining whether a self-insured dental or vision plan is “integral” to a group health plan is too narrow and should be expanded to recognize a broader range of circumstances.
"The opt-out and additional premium requirements are an appropriate safe harbor for establishing that the dental or vision benefits are not integral to a group health plan, but they should not be the exclusive test for identifying nonintegral benefits. The existing regulations fail to accommodate other circumstances under which the lack of integration is equally clear," wrote Ugoretz and Young.
Valuing On-Site Clinics and Wellness Programs
A July 18, 2011, comment letter on Notice 2011-28 submitted by the American Benefits Council, which advocates on behalf of employer-sponsored benefit programs, raised questions about the coverage of on-site health clinics and workplace wellness programs, among other issues.
"Given the uncertainty that exists on calculating the cost of coverage for on-site clinics, we urge the IRS to provide guidance excepting on-site clinics from the reporting requirements," stated the letter, signed by Paul W. Dennett, the council's senior vice president for health care reform, and Kathryn Wilber, senior counsel for health policy. "If the IRS does not believe it is appropriate to grant a complete exception with respect to on-site clinics," the letter continued, the IRS should "clarify that on-site health centers are excepted from the reporting requirement to the extent they provide only occupational health services for work-related incidents and provide an essential service and benefit to employees in the form of improved workplace safety."
Regarding wellness programs, the council noted that "Mandating that employers report the cost of a stand-alone preventive care item or stand-alone wellness program, i.e., where the preventive care item or wellness program is not part of a major medical plan, would impose substantial administrative cost and burden on employers. … Moreover, in many cases, such services and programs are paid for directly by an employer out of general assets and may not be paid as a separate charge or premium to a third-party issuer or provider, thereby making valuation of 'aggregate cost' difficult to determine," the council pointed out.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
IRS Issues Guidance on Reporting Health Coverage Cost on Forms W-2, SHRM Online Benefits Discipline, January 2012
IRS Issues Guidance on W-2 Reporting of Health Care Costs, SHRM Online Benefits Discipline, July 2011
IRS Issues Interim Guidance on Form W-2 Reporting of Cost of Health Coverage, SHRM Online Legal Issues, June 2011
IRS Issues Guidance on W-2 Reporting of Health Care Costs, SHRM Online Benefits Discipline, April 2011
IRS Delays Form W-2 Reporting Requirement Under PPACA, SHRM Online Legal Issues, October 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page