Archive for November 2012

W-2 Reporting of Health Care Contributions

401k eggThe induction of the Patient Protection and Affordable Care Act brings forth new guidelines for employers including those participating in a Professional Employer Organization (PEO) relationship. The Patient Protection and Affordable Care Act requires certain employers to report the aggregate value of employer-sponsored eligible health plans on Form W-2 (in Box 12, Code DD) starting January 2013. The aggregate value of an employer-sponsored plan includes both employer and employee contributions made during the year.  Costs incurred by Long – Term Care, Stand-alone Dental and Vision Plans and Archer Medical Savings Accounts are excluded from the new reporting requirement.

 Why is this Information Reported?

The intent for implementing reporting rules is to provide employees with information about the cost of their healthcare expenses. According to the Internal Revenue Service (IRS), the data is displayed for informational purposes only to illustrate the value of healthcare coverage. This information allows employees to easily compare healthcare pricing and understand costs.

What is recorded?

The reporting requirement includes both employer and employee contributions paid to healthcare vendors in 2012.  The types of plans covered include: 

  • Medical plans
  • Prescription drug plans
  • Executive Physicals
  • Onsite clinics (that provide more than superficial care)
  • Medicare Supplemental Plans

The IRS provides a detailed list of coverage options required for W-2 reporting along with exceptions on http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage.

 Type of Employers

 The reporting requirement applies to all private sector employers, federal, state, and local government entities, third-party employers (i.e. PEO), churches, and other religious organizations.  Employers with 250 employees or more are required to report health care costs. The employee count per employer is based on the number of W-2s issued in the prior year. Thus if an employer issued 250 W-2s in 2011, the employer must report costs on 2012 Form W-2s in 2013. Small businesses who filed fewer than 250 W- 2s for the proceeding calendar year have until January 2014 to seek compliance. Furthermore, Indian Tribal governments and  Tribally Chartered Corporations are also not subjected to the new reporting requirement until further guidelines are issued.   

Employers in a PEO Agreement

Although there is no direct answer for reporting requirements for PEOs, the current application of the Family Medical Leave Act (FMLA) and Title VII suggests how this requirement may be enforced. Both FMLA and Title VII are applied on a client – level instead of a PEO level. FMLA guidelines do not apply to PEO clients that employ fewer than 50 employees in a 75-mile radius in the calendar year, even if the PEO has more than 50 employees (at different clients) in the same 75- mile radius. The Equal Employment Opportunity Commission (EEOC) implements a similar structure in regards to Title VII. The EEOC does not have jurisdiction over a PEO client with fewer than 15 employees. Both of these legislations use the employer’s population as the deciding factor instead of viewing the PEO as a whole. If the reporting requirement follows this structure, employers with a small employee population will not have to report healthcare costs even if they belong to a PEO.  

 Another factor to consider is if the employer is involved in a single – employer plan or a multi -employer plan. A single employer plan is a type of pension plan that is sponsored by one employer or a group of employers under a common controlled structure. This means employee benefit plans are maintained by one employer. In a single – employer plan, employers that provide applicable – employer sponsored coverage during the calendar year are subjected to the reporting requirement. In contrast, a multi – employer plan is a pension plan structured by several employers, thus if an employee moves to another employer in the plan, the employee’s benefits are still covered. Employers who only contribute to multi – employer plans are excluded from the reporting requirement.

Penalties

 According to the IRS, failure to report the costs on Form W-2 for the 2012 tax year may result in a penalty of $200 per Form W-2, up to a maximum of $3 million. Liability may also arise for inaccurately reporting data on Form W-2, including but not limited to IRS penalties of $100.00 for each form containing incorrect information.

Best Practices for Employers 

  • Identify the employer-sponsored health coverage benefits subjected to the reporting requirement.
  • Calculate the aggregate cost of employer –sponsored plan for all applicable employees who received health insurance during 2012.  
  • If an employee worked for a portion of the year, report the total premium paid for that applicable timeframe only.
  • Consult your healthcare vendor to understand how preparations for compliance will be handled.