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WASHINGTON—Internal Revenue Service guidance released last week resolves additional questions employers have raised about a health care reform law requirement that they report the cost of health care coverage on employees' W-2 wage and income statements.
Under the requirement, health care cost information must be reported on 2012 W-2s, which will be issued in 2013. Under previous IRS guidance, smaller employers—those that distribute fewer than 250 W-2s in 2011—are exempt from this requirement until at least 2014 and possibly longer.
The latest guidance makes clear that employers are allowed but not required to report contributions to health reimbursement arrangements in calculating health care costs.
In addition, the cost of providing coverage through employee assistance programs, wellness programs or on-site medical clinics is not required to be reported if the employer does not charge premiums for the coverage to COBRA beneficiaries.
The guidance also clarifies that the reporting requirement does not apply to Native American tribal governments.
“This is very helpful guidance,” said Anne Waidmann, a director with PricewaterhouseCoopers L.L.P. in Washington.
“The IRS has provided answers to issues that were not clearly addressed before,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.
The latest guidance also reiterates numerous provisions in last year's guidance, including that the cost of coverage that is taxable to employees, such as for a child older than 26, must be reported on the W-2. It also reiterates that contributions employees make to flexible spending accounts are to be excluded from the health care cost figure.
Additionally, employers will not have to include dental and vision care coverage costs in computing employees' health care costs if those plans are separate from group medical plans, as is typically the case.
In addition, in situations where employees work part of the year and then terminate employment and receive COBRA coverage, employers can choose to report only the cost of coverage while the employee was working or to report that cost plus the cost of COBRA health care continuation coverage. In that situation, however, the reporting choice must be applied consistently, the IRS said.
Under the guidance, health care cost information does not have to be reported when distribution of a W-2 is not required. The most common example of that situation involves a retired employee who receives retiree health care coverage from his or her former employer but does not receive a salary.
Unlike other health care reform law reporting requirements—such as one that would have required employers to furnish 1099 statements when they do more than $600 of business with a corporate vendor, which Congress repealed last year—the W-2 reporting requirement has triggered little opposition from employers.
That may be due, at least in part, to the fact that many employers already disclose to employees the cost of their health care coverage, consultants say.
The W-2 reporting guidance is the first health care reform law direction regulators have issued in 2012.