Health Insurance Reporting Is Delayed

 In Insurance

The health insurance legislation passed in Washington in 2010 contained several requirements for businesses. As reported in the CPA Client Bulletin, businesses had been required to report more purchases of goods and services on IRS Form 1099. That provision from the 2010 legislation has now been repealed.

Another provision of the 2010 health care legislation calls for employers to report the cost of health insurance provided to employees. Those reports would be on the annual W-2 forms provided to employees and to the IRS. The proponents of this provision asserted that such reporting would provide employees with useful information about the cost of their health insurance coverage.

Last year and this year, the IRS issued two notices related to this requirement, IRS Notice 2010-69 and IRS Notice 2011-28. These notices delayed the date when such reporting will be required. The IRS also provided guidance about the requirements in the form of questions and answers.

Citing the costs
Under this requirement, all employers must report the total cost of health insurance, including employer and employee contributions. If the insurance covers an employee’s family members, that cost also must be reported.

Example: Jim Washington works for ABC Corp., where he has family health insurance that covers his wife and their two children. ABC pays $800 a month for this coverage, and Jim pays $300 a month, which is deducted from his paychecks. The total cost is $1,100 a month, or $13,200 a year. On Jim’s W-2 form, ABC will be required to report $13,200 as the cost of Jim’s health insurance. As you can see, ABC pays $800 a month ($9,600 a year) to buy health insurance for Jim. Jim doesn’t owe tax on this benefit he receives. In Notice 2011-28, the IRS affirmed that the health insurance reported by employers will not be included in employees’ taxable income.

Deferring the deadline In its 2010 notice, the IRS announced that health insurance cost reporting is optional for 2011. Therefore, employers do not have to calculate health insurance costs this year and do not have to include those costs on W-2 forms delivered in early 2012. The requirement does take effect in 2012, however, so the costs of health insurance must be included on W-2 forms issued in early 2013.

The IRS notice published this year provides further relief for smaller companies. Employers that file fewer than 250 W-2 forms in 2011 are exempt from the health insurance cost reporting requirement for an additional year. Those employers will not need to put the additional information on the W-2s they issue until early 2014, reporting health insurance costs for 2013.

Details defined
The IRS clarified other points in its 2011 notice. For example, the cost amounts that must be reported do not include contributions to health savings accounts, Archer medical savings accounts, or health reimbursement arrangements. Similarly, contributions to a healthcare flexible spending account (FSA) generally should not be included. (If an employer contributes money to employees’ healthcare FSAs, those amounts should be included.) The cost of vision and dental benefits should be included on the W-2 forms only if they are part of a group health plan.

The IRS describes several methods of calculating the health insurance costs that must be put on employees’ W-2 forms. The process may not be simple, but there is time to prepare for such reporting.