In addition to the new informational reporting outlined in the November ACA brief, many employers remain subject to the Form W-2 informational reporting which began for tax year 2012. Employers must report the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2 in box 12 using code DD. The reporting is for informational purposes only, and the reported cost of coverage on the Form W-2 is not taxable to the employee.
Employers are not required to report the cost of coverage for individuals who do not receive a Form W-2, such as a contractor or retiree. Employers are not required to include the informational reporting for terminated employees who request to receive the Form W-2 before the end of the calendar year. Self-insured plans that are not subject to any federal continuation coverage requirements and expatriate health plans are exempt from this informational reporting. Employers who filed fewer than 250 Forms W-2 for the prior calendar year (2016) are not subject to this informational reporting for tax year 2017.
Applicable Employer-Sponsored Coverage
The aggregate cost of applicable employer-sponsored coverage is to be reported for the entire calendar year. The cost of coverage reported on the Form W-2 is based on the information known to the employer as of December 31. Aggregate cost is the total cost of coverage (employer and employee contributions) for the employee and covered dependents under all applicable employer-sponsored coverage, without regard to the taxability of benefits (i.e., pre-tax premium or imputed income). The Internal Revenue Service (IRS) created a chart to indicate which employer-sponsored coverage must be included in the aggregate cost.
Methods for Calculating the Aggregate Reportable Cost of Applicable Employer-Sponsored Coverage
Employers may calculate the reportable cost under the plan using one of three methods: (1) the COBRA applicable premium; (2) the premium charged method (for fully insured plans, the monthly premium cost); or (3) the modified COBRA premium if the employer subsidizes the cost of coverage or determines the cost of coverage for a year by applying the cost of coverage in a prior year.
Other Calculation Concerns
The aggregate reportable cost under a plan must reflect any increases or decreases in cost for the calendar year. Employers must track the addition or deletion of coverage for employees and dependents each month and any other cost changes such as an annual rate change.
Employers who have a pay period that includes December 31and continues into the next year may determine the reportable aggregate cost of coverage in one of three ways: (1) treat the coverage as provided during the calendar year that includes December 31; (2) treat the coverage as provided in the next calendar year; or (3) allocate the cost of coverage for the number of days in each calendar year. Whichever method is chosen, it must be applied consistently to all employees.
Corrected Forms W-2 and Penalties
The IRS requires that employers subject to this reporting send a Form W-2c (corrected form), if the original did not include the required informational reporting. Penalties may be imposed for noncompliance.
The Patient Protection and Affordable Care Act is a complex law. Any statements made are based solely on our experience as consultants and should not be viewed as legal or tax advice. Marsh & McLennan Agency LLC shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein.