Monday, July 12, 2010

Clarification on new W-2 reporting required by health reform legislation

According to the Patient Protection and Affordable Care Act (PPACA), employers will be required to calculate and report the aggregate cost of employer-sponsored health benefits on employees’ Form W-2s for taxable years beginning after December 31, 2010.

Most W-2s for tax year 2011 will be issued in January 2012; however, the new Form W-2s must be available no later than February 1, 2011, in the event that a terminating employee requests one at an earlier date.

It is important to note that the aggregate cost of an employee’s health benefits will not be included in the employee’s taxable income. The W-2 reporting will be a way to track coverage values for the 40% excise tax on high-cost employer-based health plans (the so-called “Cadillac plan tax”), effective in 2018.

Employers only need to report the aggregate cost of benefits. They will not be required to provide a breakdown of the various types of coverage.

Benefits that must be reported include:
• Medical plans
• Prescription drug plans
• Dental and vision plans, unless they are “stand alone” plans (i.e., an employee may elect only dental or vision and is not required to also enroll in medical coverage)
• Executive physicals
• On-site clinics if they provide more than minimal care
• Medicare supplemental policies
• Employee assistance programs

Benefits exempt from reporting requirements:
• Long-term care, accident or disability income benefits
• Specific disease or illness policies
• Hospital indemnity policies in which the full premium is paid after-tax by the employee
• Archer MSA or HSA contributions of the employee or employee’s spouse
• Salary reduction contributions to a health FSA

For more information, click to access the W-2 Reporting Requirements Issue Brief from the National Association of Health Underwriters (NAHU).

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