New Employer W-2 Form

Wednesday, September 22, 2010

Beginning in tax year 2011, the PPACA requires employers to report the value of the health care benefits they provide to employees on each employee’s annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income and it is not taxable.

This new reporting requirement applies for employees’ tax years beginning after December 31, 2010. Because employees are entitled to request their Form W-2 early if they terminate employment during the year, payroll systems need to be updated for this change by January 2011.

While most W-2s for tax year 2011 will be issued in January 2012, W-2s reflecting the new health insurance information must be available no later than February 1, 2011 for any terminating employee. It is important to note that the 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 excise tax (starting in 2018) on “high cost” employer based medical coverage above certain thresholds (the so called “Cadillac plan tax”). The coverage costs must be reported under the new requirement.

Employer sponsored health insurance includes any coverage under any group health plan made available to employees which is excludable from the employee’s gross income.

The coverage costs under the IPHFHA, Inc. Group Health program would include only the medical and dental premiums.

Benefits exempt from Form W-2 reporting requirements are:

·                     Coverage only for accident and disability income insurance

·                     Life insurance

·                     Workers’ compensation

·                     Automobile medical payment insurance

·                     Credit-only insurance

·                     Long-term care

·                     Archer MSAs and HSA

·                     Salary reduction contributions to a flexible spending arrangement

Employers will not be required to provide a specific breakdown of the various types of coverage, but must only report an aggregate cost. For example, if an employee enrolls in medical and dental, the employer only has to report the total value of all coverage, not a value for each individual benefit.

This information is for educational purposes only. Please refer to your tax advisor for additional information or guidance.

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