W-2 Reporting FAQs
IRS Issues Updated W-2 Reporting Guidance
Health Care Reform requires employers to report the cost of employer-sponsored health care coverage on employees' W-2 Forms beginning with the 2012 calendar year (that is, for the Form W-2s required to be issued by January 31, 2013). Last year, the IRS issued interim guidance on the W-2 reporting requirements in question and answer form in Notice 2011-28. On January 3, 2012, the IRS issued additional guidance in Notice 2012-9. This guidance clarifies and restates the original guidance (Notice 2011-28 is superseded), and adds several new questions and answers. Employers may want to review their course of action to determine if it is still on target.
W-2 Reporting FAQs
Notice 2012-9 clarifies several questions and answers that originally appeared in Notice 2011-28. Thus, Notice 2012-9:
- Modifies Q&A-3 to clarify that the W-2 reporting requirement will not apply to tribally chartered corporations wholly owned by Federally recognized Indian tribal governments.
- Modifies Q&A-3 to clarify the application of the interim relief from the W-2 reporting requirement for employers filing fewer than 250 Forms W-2 for the preceding calendar year.
- Modifies Q&A-7 to clarify the application of the W-2 reporting requirement to certain related employers not using a common payroll system.
- Adds a new example to Q&A-19 to demonstrate that the W-2 reporting requirement does not apply to coverage under a health flexible spending arrangement if contributions occur only through employee salary reduction elections.
- Modifies Q&A-20 to clarify that the W-2 reporting requirement does not apply to coverage under dental or vision plans that are HIPAA-excepted benefits.
- Modifies and corrects Q&A-23 to clarify that the W-2 reporting requirement does not apply to the cost of coverage included in income under Code section 105(h), or payments or reimbursements of health insurance premiums for a 2% shareholder-employee of an S corporation who is required to include the premium payments in gross income.
- Modifies Q&A-28 to clarify how the W-2 reporting requirement applies if a composite rate is used to determine premiums for active employees but not for COBRA qualified beneficiaries.
- New Guidance
Notice 2012-9 also adds several new questions and answers. Thus, Notice 2012-9:
- Provides that employers are not required to report the cost of coverage for on-site clinics, wellness programs, or employee assistance programs unless the employer charges a COBRA premium for that coverage (Q&A-32).
- Clarifies that employers may choose to include the cost of coverage under programs for which W-2 reporting is not required (such as the cost of coverage under a health reimbursement arrangement) (Q&A-33).
- Clarifies how to calculate the reportable amount for coverage only a portion of which constitutes coverage under a group health plan (Q&A-34).
- Clarifies how to calculate the reportable amount if an employer is notified after December 31 of a calendar year of events occurring on or before that date affecting the prior year's coverage, such as an employee providing an employer notice of a divorce or other change in family status that occurred during a prior calendar year (Q&A-35).
- Clarifies how to calculate the reportable amount where coverage extends over the payroll period including December 31 (Q&A-36).
- Clarifies the exception for certain hospital indemnity or other fixed indemnity insurance offered by an employer on an after-tax basis (Q&A-37 and Q&A-38).
- Provides that the reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider (Q&A-39).
The Final Word for 2012 W-2 Reporting?
The IRS continues to emphasize that future guidance may limit some or all of the W-2 reporting exceptions described in Notice 2012-9. However, the IRS helpfully says that employers can rely on these reporting exceptions when preparing 2012 Forms W-2 and, furthermore, that in no case will future guidance limit the availability of these reporting exceptions for the 2012 Forms W-2.