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October 14, 2010 | HR Compliance | Posted by Ascentis

Health Plan Reporting Reprieve for Tax Year 2011

Good news employers, there is no need to rush the implementation of the Health Care Cost Reporting which was set to be required starting this January, 2011.  Just a few days ago, the IRS issued notice 2010-69 offering “interim relief with respect to form W-2 reporting of the cost of coverage of group health insurance under § 6051(a)(14).

As many HR and Payroll managers have been aware, the Section 6051(a)(14) was added to the Code by § 9002 of the Patient Protection and Affordable Care Act of 2010, Public Law 111-148, enacted March 23, 2010. Section 6051(a)(14) provides that the total cost of applicable employer sponsored coverage (as defined in § 4980I(d)(1)) must be reported on Form W-2 in January, 2011.

This meant that you were required to begin reporting (for tax year 2011) on employees W-2’s the applicable employer-sponsored coverage.   For the purposes of this reporting, it does not matter who pays for the coverage (whether a percentage or in total), it is the total COST of the coverage that must be disclosed and reported.

There are a few exclusions to the reporting rule, however, including:

  • Long term disability insurance
  • Coverage for a specific illness
  • Hospital indemnity or fixed indemnity insurance
  • Salary reductions contributions to a flexible spending account (FSA) under a cafeteria plan.

This requirement was originally effective for tax year 2011 and forward. However, the IRS decided that relief from 2011 requirement was needed in order to allow employers additional time to make any essential changes to their payroll systems preparation for compliance with the reporting requirement. However, the IRS has made reporting optional for the 2011 tax year, so employers are not required to include this information on W-2 Forms issued for 2011.

Despite the reporting reprieve, there are some compliance related issues that employers should really start paying attention to immediately:

  • Make sure that your payroll manager or staff is gathering this information now ahead of time for the mandatory 2012 reporting.
  • Document what coverage was provided to each employee and have the calculation of that total cost documented for each employee.
  • Employers may be asked to address questions from employees about this reporting requirement for this tax year as well as next year. Using an employee self service (ESS) feature of an HRIS system (if you have one) will help in getting this information out to your employees. However, if you don’t have employee self service in your HRIS, sending out a memo assuring your employees that the information that will show up on their W-2’s in 2012 (and not in 2011) is intended to simply to show them the total value of their health care benefits, and does affect their tax liability.

If you are an Ascentis payroll software customer, this reprieve allows you some time to start gathering the information required for this reporting feature. If you have not done so already, call your account manager at (916) 624-6160 to talk about how we can help you make the necessary changes to your services to include this reporting option on your W-2’s for 2012.  If you are not an Ascentis customer yet, please feel free to contact us with any questions you may have about acquiring our Payroll system or moving from your current system to ours. Ascentis Payroll (as well as our other products) is extremely customizable, flexible, and easy to use.

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