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New W-2 requirements coming soon

The PPACA is a complicated set of new rules and regulations but most employers just want to know, “How does it effect me?”.  One change that effects the great majority of employers, and is often overlooked with all the bigger discussions around health care reform is the change to W-2 reporting that starts with 2012 tax year reporting (the reporting done in early 2013).  Specifically, Section 6051(a)(14) of the tax code requires that employers include the aggregate cost of employer sponsored health coverage on Form W-2, Box 12, using code DD.

As per the interim guidance published by the IRS in Notice 2011-28, the amount to be reported is based on the “applicable premium” for employer sponsored group health coverage, not including policies that cover dental or vision services only.   It also does not include policies for disability income, life, workers compensation, auto or any other coverage in which medical care benefits are a secondary or incidental part of the policy.  Essentially this means only group medical and prescription drug coverage are to be part of this new reporting.  However, the amount to be reported also does not include HRA, HSA or FSA contributions by either the employer or employee.  What it does include, for employers with insured group health plans, is the premiums paid by both the employer and employee toward the group health plan sponsored by the employer.  For self funded employers the amount reported is based on COBRA applicable premiums.  For more details you can read the interim guidance here www.irs.gov/pub/irs-drop/n-11-28.pdf.

This may seem like just another demand put on HR departments or another cost to those that use payroll service companies to produce W-2s.  However the intent of this portion of the legislation is to make employees more aware of the cost of the benefits they receive.  It is not overly complicated to produce the aggregate cost for each employee and I think the information can be powerful.  One of the problems with our healthcare system is that so many people have very little idea of the cost associated with their health benefits.  This is a good step towards making everyone aware of those ever increasing costs that we all like to complain about.

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