Compliance Deadlines

Large employers (those that file 250 or more Forms W-2 for the preceding calendar year) must comply with the reporting requirement beginning in 2012 for the Forms W-2 that must be provided by the end of January 2013.

The Form W-2 reporting requirement is optional for small employers with respect to the 2012 Forms W-2. Small employers will not be required to comply with the reporting requirement for years beyond 2012, unless and until the IRS issues further guidance. A small employer is one that filed fewer than 250 Forms W-2 for the preceding calendar year. Thus, if an employer filed less than 250 Forms W-2 for 2011, the employer is not subject to the W-2 reporting requirement for 2012.

Interim Guidance

Notice 2012-9 contains interim guidance for employers that include health coverage cost information on the Forms W-2 for 2012 and later years. Employers that voluntarily decided to report the cost of coverage on 2011 Forms W-2 may also rely on the technical guidance provided in Notice 2012-9.

Written in question-and-answer (Q&A) format, the guidance provides information on the following issues:

·  Employers subject to the reporting requirement;

·  Method of reporting on the Form W-2;

·  Aggregate cost of employer-sponsored coverage;

·  Cost of coverage required to be included in the aggregate reportable cost;

·  Methods of calculating the cost of coverage; and

·  Other issues relating to the Form W-2 reporting requirements.

Notably, this guidance clarifies that the cost of coverage under certain plans is not required to be included on an employee’s Form W-2. These plans include multiemployer plans, health reimbursement arrangements (HRAs), dental or vision plans that are not integrated into a group health plan providing health care coverage, self-insured group health plans that are not subject to federal continuation coverage requirements (such as church plans), and government plans maintained primarily for members of the military or their families.

The guidance also provides that employers are not required to report the cost of coverage under an employee assistance program (EAP), wellness program or on-site medical clinic if the employer does not charge COBRA beneficiaries a premium for the coverage.

To read the full interim guidance, see Notice 2012-9 at http://www.irs.gov/pub/irs-drop/n-12-09.pdf.

Methods of reporting

Coverage Provided after Termination of Employment

If an employer provides coverage (such as continuation coverage) to an employee who terminates employment during the year, the employer may apply any reasonable method of reporting the cost of coverage for that year, as long as that method is used consistently for all employees. Regardless of the method used, an employer does not have to report any amount for an employee who requests a Form W-2 before the end of the calendar year in which the employee terminated employment.  

Example: Bob is an employee of XYZ Company on January 1, and continues employment through April 25. Bob had individual coverage under XYZ Company’s group health plan through April 30, with a cost of coverage of $350 per month. Bob elected continuation coverage for the six months following termination of employment, covering the period May 1 through October 31, for which he paid $350 per month. XYZ Company will have applied a reasonable method of reporting Bob’s cost of coverage if it uses either of the following methods consistently for all employees who terminate coverage during the year:

·  Reports $1,400 as the reportable cost under the plan for the year, covering the four months during which Bob performed services and had coverage as an active employee; or

·  Reports $3,500 as the reportable cost under the plan for the year, covering both the monthly periods during which Bob performed services and had coverage as an active employee, and the monthly periods during which Bob had continuation coverage under the plan.

Programs with Non-Reportable Benefits

Also, if a program offers benefits that must be reported, and other benefits that are not subject to reporting, an employer may use any reasonable allocation method to determine the cost of the portion of the program providing a reportable benefit. If the portion of the program that provides a reportable benefit is only incidental in comparison to the portion of the program providing other benefits, the employer is not required to include either portion of the cost on the Form W-2.

Coverage Periods Spanning Calendar Years

If a coverage period, such as the final payroll period of a calendar year, includes December 31 and continues into the next calendar year, the employer has the following options:

·  Treat the coverage as provided during the calendar year that includes December 31;

·  Treat the coverage as provided during the following calendar year; or

·  Allocate the cost of coverage between each of the two calendar years using a reasonable allocation method that is consistently applied to all employees. The allocation method should generally relate to the number of days in the period of coverage that fall within each of the two calendar years.

CALUCULATING STEPS FOR EMPLOYERS

The total cost of coverage provided to the employee is to be reported, whether paid by the employer or by the employee. PPACA provides that the reportable cost is to be determined under rules similar to those for determining the applicable COBRA premium under the Internal Revenue Code. An employer may calculate the reportable cost under the plan using one of the following methods: (1) the COBRA applicable premium method; (2) the premium charged method if the employer is determining the cost of coverage for an employee covered by the employer’s insured plan; or (3) the modified COBRA premium method if the employer subsidizes the cost of coverage or determines the cost of coverage for a year by applying the cost of coverage in a prior year.

The guidance clarifies that an employer is not required to use the same method for every plan, but must use the same method with respect to a plan for every employee receiving coverage under that plan.

Notice 2012-9 provides that an employer who uses a composite rate for active employees but not for COBRA beneficiaries may use either rate for determining the applicable cost to be reported, provided it is used consistently.

The reportable cost for a year must take into account any changes in coverage for the employee during the year, and it must be determined on a calendar year basis for all employees regardless of the plan year.

COMPLIANCE STEPS FOR EMPLOYERS

Employers subject to the reporting requirement for 2012 should make sure that they (or their payroll providers) are prepared to gather the necessary health coverage cost information in advance of having to complete the 2012 Forms W-2. In doing so, these employers should make sure they can identify the applicable employer-sponsored coverage that was provided to each employee and are prepared to calculate the aggregate cost of that coverage.

Employers may also have to address questions from employees regarding whether their health benefits are taxable under this new requirement. They can assure employees that the rule is a reporting requirement only, and does not mean they will incur additional tax obligations.

Unison will continue to monitor health care reform developments and will provide updated information as it becomes available.  If you have immediate questions or concerns, please contact your Unison Employee Benefits Consultant.

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