IRS Q&As on Form W-2 Reporting

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The Affordable Care Act (ACA) added Internal Revenue Code (Code) section 6051(a)(14), which requires employers to report the aggregate cost of employer-sponsored group health plan coverage on their employees’ Forms W-2. This reporting requirement was originally effective for the 2011 tax year. However, the IRS later made reporting optional for 2011.

In April 2011, the IRS issued Notice 2011-28, which furthered delayed the Form W-2 reporting requirement for small employers and provided interim guidance on the reporting requirement. On Jan. 3, 2012, the IRS issued Notice 2012-9, which revised and clarified the IRS’s interim guidance on the Form W-2 reporting requirement.

The Form W-2 reporting requirement applies to employers as follows:

  • The Form W-2 reporting requirement is optional for small employers (those that file fewer than 250 Forms W-2), unless and until the IRS issues further guidance.
  • Large employers (those that file 250 or more Forms W-2) must comply with the W-2 reporting requirement. This requirement became effective in 2012 for large employers.

 

The IRS’s interim guidance is written in question-and-answer (Q&A) format and provides information on a variety of issues related to the Form W-2 reporting requirement. The interim guidance is generally applicable beginning with the 2012 Forms W-2. Employers that voluntarily reported the cost of coverage on the 2011 Forms W-2 were also allowed to rely on the interim guidance.

This Legislative Brief contains the Q&A interim guidance as provided by the IRS in Notice 2012-9. It has been updated to include additional Q&As provided by the IRS.

In General

Q-1: What does Code § 6051(a)(14) require?

A-1: Section 6051(a)(14) generally requires the aggregate cost of applicable employer-sponsored coverage to be reported on Form W-2.

Q-2: Does the requirement under § 6051(a)(14) to report the aggregate cost of employer-sponsored coverage on Form W-2, or compliance with this requirement, have any impact on whether such coverage is taxable?

A-2: No. The requirement is informational only. The provisions of § 6051(a)(14) do not affect whether any particular coverage is excludable from gross income under § 106 or any other Code provision, and the reporting of any amount on Form W-2 in compliance with the requirements of § 6051(a)(14) will not affect the amount includable in income or the amount reported in any other box on Form W-2. The purpose of the reporting is to provide useful and comparable consumer information to employees on the cost of their health care coverage.

Employers Subject to the Reporting Requirement

Q-3: What employers are subject to the reporting requirement under § 6051(a)(14)?

A-3: Except as provided in this Q&A-3, all employers that provide applicable employer-sponsored coverage (see Q&A-12) during a calendar year are subject to the reporting requirement under § 6051(a)(14). This includes employers that are federal, state and local government entities, churches and other religious organizations and employers that are not subject to the COBRA continuation coverage requirements under § 4980B, to the extent such employers provide applicable employer-sponsored coverage under a group health plan. (Notice 2010-69, 2010-44 I.R.B. 576, provides that reporting by these employers is not mandatory prior to the issuance of the 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to furnish to employees by the end of January 2013 and then file with the Social Security Administration (SSA))).

Employers that are federally recognized Indian tribal governments are not subject to the reporting requirements of § 6051(a)(14). Until further guidance is issued, employers that are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government also are not subject to the reporting requirements.

Also, in the case of the 2012 Forms W-2 (and Forms W-2 for later years unless and until further guidance is issued), an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. (This rule is based upon the rule in § 6011(e) that exempts employers from filing returns electronically if they file fewer than 250 returns.) Therefore, if an employer is required to file fewer than 250 2011 Forms W-2, the employer would not be subject to the reporting requirement for 2012 Forms W-2. For this purpose, whether an employer is required to file fewer than 250 Forms W-2 for a calendar year is determined based on the Forms W-2 that employer would be required to file if it filed Forms W-2 to report all wages paid by that employer and without regard to the use of an agent under § 3504. For example, an employer that would have filed only 100 Forms W-2 for the previous year had it not used an agent under § 3504 will not be subject to the reporting requirement for the year, nor will an agent under § 3504 with respect to that employer’s Forms W-2 for the year. In contrast, if the same employer would have filed 300 Forms W-2 for the previous year had it not used an agent under § 3504 of the Code, that employer would be subject to the reporting requirement for the year so that if an agent under § 3504 is used again the information will need to be provided to the agent and reported on the Form W-2.

See also Q&A-21 for an exception to the reporting requirement for coverage under a self-insured plan that is not subject to any federal continuation coverage requirements and Q&A-22 for an exception from the reporting requirement for plans maintained primarily for members of the military, or primarily for members of the military and their families.

Note: The IRS has indicated that for purposes of determining whether an employer filed fewer than 250 Forms W-2 for the prior year, the employer is determined without the application of any aggregation rules.

Method of Reporting on the Form W-2

Q-4: Is the reporting of the aggregate cost of applicable employer-sponsored coverage required for Forms W-2 issued for the 2010 or 2011 calendar years?

A-4: No. Section 6051(a)(14) does not apply to Forms W-2 for calendar years prior to 2011 and, accordingly, reporting of the aggregate cost of applicable employer-sponsored coverage is not required for Forms W-2 issued for the 2010 calendar year. Moreover, Notice 2010-69 provides that reporting will not be mandatory for the 2011 calendar year and, accordingly, an employer will not be treated as failing to meet the requirements of § 6051 for 2011, and will not be subject to any penalties for failure to meet such requirements, merely because it does not report the aggregate cost of applicable employer-sponsored coverage on Forms W-2 for 2011.

Q-5: How is the aggregate reportable cost reported on Form W-2?

A-5: The aggregate reportable cost is reported on Form W-2 in box 12, using code DD

 

December HR Brief

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Did You Know?

Many employers hire additional workers during the holidays. The same screening laws and EEOC guidelines that apply to regular applicants also apply to seasonal or temporary workers. Background checks for temporary workers must be just as thorough as those given to permanent workers, as employers may open themselves up to legal issues if temporary workers are only vetted through an Internet search.

However background checks for seasonal employees cannot be stricter, nor can their results be applied differently. Applicants for short-term work must be allowed to dispute findings of background checks and cannot be asked about irrelevant criminal history in “ban the box” states.

Federal Appeals Court Upholds Same-sex Marriage Bans

On Nov. 6, 2014, the U.S. Court of Appeals for the 6th Circuit upheld bans on same-sex marriage in Kentucky, Michigan, Ohio and Tennessee, determining that the issue should be decided by the regular political process in each state.

The immediate effect of the ruling allows those four states to keep laws in place that ban same-sex marriage within their borders and do not recognize same-sex marriages performed in other states.The 6th Circuit is the first federal appeals court to uphold state bans on same-sex marriage since the U.S. Supreme Court struck down part of the federal Defense of Marriage Act (DOMA) in 2013. This decision directly conflicts with same-sex marriage decisions from the 4th, 7th, 9th and 10th Circuits, where the federal appeals courts struck down state bans on same-sex marriage.Most observers view this conflict in appellate court rulings as the catalyst that will cause the Supreme Court to take up the issue.

Before the 6th Circuit’s decision was issued, the Supreme Court announced that it would not hear appeals in other same-sex marriage cases, at least until the fall of 2015. That decision allowed rulings by three federal appeals courts to take effect that overturned same-sex marriage bans in five states. A fourth federal appeals court issued a similar ruling days after the Supreme Court’s announcement.However, with the 6th Circuit’s decision, it is now possible that a Supreme Court decision on same-sex marriage could be issued as early as next summer, which may resolve the constitutional issue surrounding same-sex marriage once and for all.

One factor accelerating the process, according to SCOTUS blog, is that lawyers representing the challengers in all six of the cases affected by the 6th Circuit Court’s decision have agreed that they will go directly to the Supreme Court, bypassing review requests from lower courts.Same-sex marriage is currently permitted in 33 states and the District of Columbia.

NLRB Allows Employers to Require Social Media Disclaimers

The National Labor Relations Board (NLRB) has ruled that employers may require workers to post a disclaimer on their social media accounts stating that their views are separate from those of their employer. In an advice memorandum, the NLRB found that, “requiring employees, when they identify themselves as the Employer’s employees on various social media, to state that the views expressed are their own is lawful, because the Employer has a legitimate interest in protecting itself against unauthorized postings purportedly on its behalf.”The NLRB further found that employees, who have the right to discuss working conditions on social media, would not be unduly burdened by having to post a disclaimer.The same memorandum ruled that employers could not ban workers from posting what they deem as confidential or sensitive information, nor could employers restrict workers from posting “embarrassing” material.

For help adopting an employee policy that requires workers to add a disclaimer when commenting about their workplace on social media, please contact Clarke & Company Benefits, LLC.

December Benefits Buzz (2)

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HPID Requirement Delayed Indefinitely

On Oct. 31, 2014, the Centers for Medicare & Medicaid Services (CMS) announced a delay in enforcement of the Health Plan Identifier (HPID) requirement until further notice.The HPID is a standard, unique health plan identifier required by the Health Insurance Portability & Accountability Act of 1996 (HIPAA).The delay, which was announced five days before the initial deadline to obtain an HPID, means that for the foreseeable future, health plan sponsors are not required to obtain an HPID or use it in HIPAA standard transactions.CMS has not indicated if there will be a new deadline for obtaining the HPID, or when the new deadline will be. Health plan sponsors who have already obtained HPIDs should maintain records of their identifiers.This enforcement delay applies to all HIPAA-covered entities, including health care providers, health plans and health care clearinghouses. Officials responsible for enacting the delay released a statement explaining their decision was based on recommendations by a separate advisory body. Those recommendations will be reviewed while the delay is in effect.

DID YOU KNOW?

The IRS recently announced a new annual contribution limit for health Flexible Spending Accounts (FSAs) starting in 2015.

According to this guidance, for taxable years beginning in 2015, the dollar limitation on employee salary reduction contributions to health FSAs will be $2,550, an increase of $50 from the amount for 2014.

The FSA dollar limit first became effective in 2013, as part of the Affordable Care Act (ACA).

Prior to the end of 2014, cafeteria plan documents should be updated to reflect the ACA’s new health FSA dollar limit.

 

December Benefits Buzz

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Agencies Prohibit All Employer Reimbursement of Individual Premiums

Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering employer-sponsored plans.

In response, on Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued FAQ guidance stating that these arrangements do not comply with the Affordable Care Act’s (ACA) market reforms and may subject employers to penalties.

Although it was widely believed that these penalties would apply only to pre-tax arrangements, the FAQs clarify that after-tax reimbursements and cash compensation for individual premiums also do not comply with the ACA’s market reforms and may trigger the excise tax penalties.

This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.

The new FAQ follows up on IRS guidance previously issued in September 2013, which clarified that health reimbursement arrangements (HRAs), certain health flexible spending arrangements (FSAs) and other employer payment plans are considered group health plans subject to the ACA’s market reforms and cannot be integrated with individual policies to satisfy those requirements.

The IRS further clarified the issue in May 2014 when it issued two FAQs addressing the consequences for employers who reimburse employees for individual health insurance premiums. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may trigger an excise tax of $100 per day for each applicable employee. This same penalty would apply to employers who violate the new ruling against reimbursing employees for individual premiums.

The latest guidance also stated that products claiming to help employers obtain Marketplace subsidies for their workers through a Code Section 105 reimbursement plan are also not permitted.

Agencies Prohibit All Employer Reimbursement of Individual Premiums

by

Due to the rising costs of health coverage, employers have shown interest in helping employees pay for individual health insurance policies instead of offering an employer-sponsored plan.

In response, on Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) issued FAQ guidance clarifying that these arrangements do not comply with the ACA’s market reforms and may subject employers to penalties.

Although it was widely believed that these penalties would apply only to pre-tax arrangements, the FAQs clarify that after-tax reimbursements and cash compensation for individual premiums also do not comply with the ACA’s market reforms and may trigger the excise tax penalties.

This guidance essentially prohibits all employer arrangements that reimburse employees for individual premiums, whether employers treat the money as pre-tax or post-tax for employees.

Background on Employer Payment Plans

Issued on Sept. 13, 2013, IRS Notice 2013-54 first addressed the application of the ACA’s market reforms to health reimbursement  arrangements (HRAs), certain health flexible spending arrangements (FSAs) and other employer payment plans.

Notice 2013-54 clarified that these arrangements are considered group health plans subject to the ACA’s market reforms—including the annual limit prohibition and the preventive care coverage requirement—and cannot be integrated with individual policies to satisfy those requirements. As a result, effective for 2014 plan years, these plans are essentially prohibited.

On May 13, 2014, the IRS issued two FAQs addressing the consequences for employers that reimburse employees for individual health insurance premiums. Because these employer payment plans do not comply with the ACA’s market reforms, the IRS indicated in the FAQs that these arrangements may trigger an excise tax of $100 per day for each applicable employee ($36,500 per year per employee) under Code Section 4980D.

However, the Departments’ prior guidance suggested that this prohibition generally only applied to employer arrangements that reimburse individual premiums on a tax-free basis, and not to after-tax reimbursements. Thus, it was widely believed that premium reimbursement arrangements made on an after-tax basis would still be permitted.

Cash Reimbursements

According to the new FAQs, an employer arrangement that provides cash reimbursement for an individual market policy is considered to be part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax for the employee. Therefore, the arrangement is group health plan coverage subject to the ACA’s market reform provisions.

The Departments stressed that these employer health care arrangements cannot be integrated with individual market policies to satisfy the ACA’s market reforms. As a result, these plans will violate the ACA’s market reforms, which can trigger penalties, including excise taxes under Code Section 4980D.

Employees with High Claims Risk

The FAQs also clarify that an employer cannot offer a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk. This practice constitutes unlawful discrimination based on one or more health factors, in violation of federal nondiscrimination laws.

Although employers are permitted to have more favorable rules for eligibility or reduced premiums or contributions based on an adverse health factor (sometimes referred to as benign discrimination), the Departments assert that offering cash-or-coverage arrangements only to employees with a high claims risk is not permissible benign discrimination.

Accordingly, these arrangements will violate the nondiscrimination provisions, regardless of whether:

  • The employer treats the cash as pre-tax or post-tax for the employee;
  • The employer is involved in purchasing or selecting any individual market product; or
  • The employee obtains any individual health insurance.

The Departments also noted that the choice between taxable cash and a tax-favored qualified benefit (the election of coverage under the group health plan) is required to be a Code Section 125 cafeteria plan. Offering this choice to high-risk employees could result in discrimination in favor of highly compensated individuals, in violation of the cafeteria plan nondiscrimination rules.

Code Section 105 Reimbursement Plans

The Departments also noted that certain vendors are marketing products to employers claiming that, instead of providing a group health insurance plan, employers can establish a Code Section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies allowing eligible employees to access subsidies for Exchange coverage.

The FAQs assert that these arrangements are problematic for several reasons. First, these arrangements are, themselves, group health plans. Therefore, employees participating in the arrangements are ineligible for Exchange subsidies. The mere fact that the employer is not involved with an employee’s individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan.

Second, as explained in previous guidance, these arrangements are subject to the ACA’s market reform provisions, including the annual limit prohibition and preventive care coverage requirement. As noted before, these employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, can trigger penalties, including excise taxes under Code Section 4980D.