Aflac's Workforces Report for Brokers recently divulged that nearly 50 percent of brokers are considering leaving the industry, due largely to a landscape vastly changed by PPACA. Employee health benefits have become an increasingly complex industry in the past four years — which is precisely the reason that a solid broker workforce is more needed than ever. When it comes to reporting requirements, your employer clients need advice on everything from W-2 reporting to treatment of self-insured plans to reporting around minimum essential coverage. Here, you'll find answers.
1. What is the W-2 reporting requirement and when is it effective?
Employers, including those with grandfathered plans, must report the “aggregate cost” of “applicable employer sponsored coverage” on an employee’s Form W-2. This cost generally consists of employer-sponsored coverage under a group health plan (insured or self-funded) that is excludable from the employee's gross income. IRS Notice 2012-9 supersedes earlier notices that delayed and created exceptions to the PPACA W-2 reporting requirement, which originally was to apply for 2011 W-2s that normally would be issued by employers in January 2012. The W-2 reporting requirement, which was delayed by the IRS, first applies to 2012 W-2s that generally will be issued in January 2013 unless an exception (discussed in Q5) applies.
2. What is the income tax impact of this requirement to employers and employees?
None. This requirement is merely designed to provide information to the federal government. It does not change any rules regarding the employer's deductions or the taxation to the employee. Failure to properly report will not cause coverage that is excludible from gross income under Code Section 106 or any other Code provision to become taxable or to be reported in any other box on Form W-2.
3. Which employers must comply with the expanded W-2 reporting?
This requirement 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 Code Section 4980B.
4. Is the amount reported on the W-2 the amount for health coverage paid by the employer?
No. The reportable cost generally includes the amounts paid by both the employer and employee, regardless of whether paid through pre-tax or after-tax contributions. The aggregate reportable cost is reported on Form W-2 in Box 12, using Code DD.
5. Which employers are exempt from the W-2 reporting requirement?
The W-2 reporting requirement does not apply to the following:
- Employers with fewer than 250 W-2s issued for the prior calendar year until further notice.
- An employer that would have filed only 100 Forms W-2 for the previous year had it not used an agent under Code Section 3504 will not be subject to the reporting requirement for the year, nor will an agent under Code Section 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 Code Section 3504, that employer would be subject to the reporting requirement for the year. If an agent under Code Section 3504 is used again, the information will need to be provided to the agent and reported on the Form W-2.
- An employer is not required to report any amount in Box 12 using Code DD for an employee who, pursuant to §31.6051-1(d)(1)(i), has requested to receive a Form W-2 before the end of the calendar year during which the employee terminated employment.
- Coverage under a flexible spending arrangement if contributions occur only through employee salary reductions.
- “Excepted benefits,” which include dental and vision plans offered under a separate policy, certificate, or contract of insurance, or if the participants have the right to elect the dental or vision benefits and, if they do, pay an additional premium or contribution.
- Excess reimbursements that are includible in the income of highly compensated individuals under Code Section 105(h) or payments or reimbursements of health insurance premiums for a 2 percent shareholder-employee of an S corporation.
- The cost of hospital or other fixed indemnity coverage, or coverage only for a specified disease or illness, is not reportable if the coverage is offered as an independent, noncoordinated benefit and is includible in the employee’s income or paid for on an after-tax basis. However, the cost of such coverage is reportable when paid for on a pre-tax basis under a cafeteria plan or with employer contributions that are excludable from income.
6. What about related employers that each employ and pay the same person?
Related employers that do not use a common paymaster can either provide the full reportable cost to an employee on a single Form W-2 or allocate the cost and reporting among the employers. The notice does not define the term “related employers.” Presumably, it means related employers as defined for W-2 purposes. This definition includes the following types of corporations if they satisfy any one of the following four tests at any time during a calendar quarter:
(i) The corporations are members of a “controlled group of corporations,” as defined in Code Section 1563, or would be members if Code Section 1563(a)(4) and (b) did not apply and if the phrase “more than 50 percent” were substituted for the phrase “at least 80 percent” wherever it appears in Code Section 1563(a).
(ii) In the case of a corporation that does not issue stock, either 50 percent or more of the members of one corporation's board of directors (or other governing body) are members of the other corporation's board of directors (or other governing body), or the holders of 50 percent or more of the voting power to select such members are concurrently the holders of more than 50 percent of that power with respect to the other corporation.
(iii) Fifty percent or more of one corporation's officers are concurrently officers of the other corporation.
7. How is the amount of reportable cost determined?
Employers that use a composite rate to determine premiums for active employees and another method to determine COBRA premiums may use either rate to determine the reportable cost, but they must use that method consistently when reporting the cost for each applicable group. An employer may also include in the reportable cost of coverage certain amounts that need not be reported, such as the cost of coverage for a Health Reimbursement Account.
The reportable cost of coverage may be based on the information available to the employer on December 31, and need not be adjusted for later elections or notifications, such as a divorce or other change in family status that retroactively affects coverage during the prior year.
8. How do employers with self-insured health plans calculate the aggregate cost of applicable employer-sponsored coverage?
There are COBRA rules governing how a self-insured plan determines its applicable premium, generally requiring that such plans calculate the applicable premium through the actuarial method or the past cost method. Presumably these are the methods used, as the IRS notices provide no special guidance.
9. How is the cost for EAPs, wellness programs and on-site medical clinics reported?
The cost of EAPs (employee assistance programs), wellness programs, and on-site medical clinics is includible in the reported cost of coverage to the extent that the program is a group health plan. However, such coverage is not reportable if the employer does not charge a premium for that coverage for purposes of COBRA (or other federally required continuation coverage) or if the employer is not subject to COBRA.
10. What is the penalty for failure to follow the W-2 reporting requirements?
There is no special penalty for failure properly to report healthcare costs. Presumably, the normal W-2 penalties will apply.
11. What about health costs paid for retirees not entitled to a W-2?
Employers are not required to issue a W-2 to report health plan costs to persons not otherwise required to receive a W-2.
12. Has the IRS provided a chart summarizing the W-2 health cost reporting requirements?
Yes, it is as follows:
13. In addition to the W-2 reporting, what other reporting must employers make to the IRS and covered individuals?
Healthcare reform requires any person who provides “minimum essential coverage” to an individual during a calendar year to report certain health insurance coverage information to the IRS. Reporting is required for grandfathered plans. No reporting is required for “excepted benefits.” The employer must also provide a written statement to the covered individual, as discussed in Q26.
14. When does this reporting requirement go into effect?
The requirement for Reporting of Health Insurance Coverage originally was to be effective in 2014. However, IRS Notice 2013-45, issued in July 2013, provided a one-year delay to three reporting requirements under the healthcare reform law.
The first reporting requirement that was postponed was the annual obligation under Section 6055 of the Internal Revenue Code (Code) for insurers, self-insuring employers and other parties that provide “minimum essential coverage” to provide certain information to the IRS.
The other two requirements that were postponed were
- The annual obligation under Code Section 6056 for applicable large employers to report to the IRS and to the employer’s full-time employees as to whether and what healthcare coverage is offered to such employees.
- The requirement under Code Section 4980H for applicable large employers to offer healthcare coverage to full-time employees or pay penalties, commonly known as the “play-or-pay” penalties (POP).
15. What type of information must be reported to the IRS?
The type of information includes the name and address of the primary insured and other individuals covered under an applicable policy, the dates of coverage, and whether and by what method Minimum Essential Coverage is provided. This information is used to determine various employer and individual penalties, when applicable.
16. Did the July 2013 IRS Notice postpone all elements of the PPACA reporting requirements?
No. The Notice postpones compliance with only these three requirements until 2015. Everything else scheduled to become effective in 2014 will go into effect in 2014.
17. What new effective dates did the July 2013 Notice provide?
The Notice advises that the IRS will in the summer of 2013 propose regulations for the two information-reporting provisions now effective in 2015. The IRS encourages employers, insurers and other reporting entities to voluntarily comply with the proposed rules for information reporting for 2014, but no penalties for failure to comply with these reporting provisions now exist for 2014.
18. Why were the reporting requirements postponed?
The information reporting required by Code Sections 6055 and 6056 must occur in order for the IRS to enforce and administer the employer mandate requirements under Code Section 4980H. The employer mandate penalties are triggered if one or more of an applicable large employer’s full-time employees are entitled to premium tax credits for the purchase of insurance on a state exchange marketplace under Code § 36B and (1) the employer fails to offer 95 percent of full-time employees and their dependents the opportunity to enroll in minimum essential coverage or (2) the employer offers full-time employees and dependents the opportunity to enroll in minimum essential coverage but the coverage is not affordable or does not provide minimum value. The second penalty can never exceed the first penalty.
An employer typically will not know whether a full-time employee has received such a tax credit, and the employer will not have all the information needed to determine whether it owes an employer mandate penalty. Therefore, applicable large employers do not have to calculate employer mandate penalties or file returns submitting payment for such penalties in 2014.
Instead, the IRS, after receiving the information returns filed by applicable large employers under Code Section 6056 and the information about employees claiming the premium tax credit for any given calendar year, will determine whether any of the employer’s full-time employees received the premium tax credit and, if so, whether any employer mandate penalty is due. The IRS will thus contact any applicable large employer if the employer owes a penalty, and the employer will have an opportunity to respond to the information provided by the IRS before any penalty is assessed.
19. Is an employees’ ability to receive premium tax credits in 2014 effected by the reporting requirement delay?
No. The Notice states that the transition relief does not affect an individual’s eligibility for a premium tax credit if he or she purchases health insurance through one of the health insurance exchange marketplaces established under the Act. Participants in the exchanges will continue to qualify for premium tax credits if their household income is within the specified range and they are not eligible for other minimum essential coverage. Such other minimum essential coverage includes eligible employer-sponsored group health plans that are affordable and provide minimum value.
20. Were any 2014 requirements of the PPACA affected by the extension of the effective date of these reporting requirements?
No. The Notice makes clear that the 2014 transition relief is limited solely to these three items and has no effect on the effective date or application of other provisions under the Act, many of which go into effect in 2014. For example, the transition relief has no effect on the provisions taking effect in 2014 as to premium tax credits for those purchasing subsidized health insurance on an exchange marketplace or the individual mandate requirements under Code § 5000A for individuals to maintain healthcare coverage for themselves or pay penalties.
21. What are some of the 2014 requirements that were not affected by the postponement of these three reporting requirements?
Provisions taking effect for Plan Years beginning on or after Jan. 1, 2014 include the following:
- Group health plans, whether or not “grandfathered” under the Act, may not impose dollar limits on “essential health benefits.”
- Non-grandfathered health insurance plans in the small group market must offer essential health benefits.
- Group health plans and health insurance issuers offering group health insurance coverage may not establish rules for initial or continued eligibility of an individual to enroll in the plan or discriminate as to coverage based on the individual’s or dependent’s health status-related factors, such as medical condition (both physical and mental illnesses); claims experience; receipt of healthcare; medical history; genetic information; evidence of insurability (including conditions arising out of acts of domestic violence); and disability. Nevertheless, premium or contribution provisions for similarly-situated individuals in connection with a wellness program that satisfies certain requirements are permitted
- Group health plans and health insurance issuers offering group health insurance coverage, including grandfathered plans and policies, may not impose any preexisting condition exclusion.
- Group health plans, including grandfathered plans, cannot apply waiting periods for coverage that are greater than 90 days.
- Non-grandfathered group health plans may not impose annual cost-sharing that exceeds the maximum out-of-pocket expense limits for health savings account-compatible high-deductible health plans.
22. What is “minimum essential coverage” that must be reported?
Most employer-provided group health coverage is “minimum essential coverage.” The definition includes any “eligible employer-sponsored plan.” This includes a group health plan or group health insurance coverage offered by an employer to an employee that is a governmental plan or any other plan or coverage offered in a state’s small or large group market.
23. Who is subject to this reporting requirement?
Employers sponsoring insured and self-insured plans must file reports. It is possible that insurers will be required to make this reporting on behalf of employers with insured group health plans. Additionally, these requirements must be coordinated with the additional reporting required for large employers to prevent redundant reporting.
24. When is this reporting requirement effective?
The Code Section 6055 reporting requirement is first required for coverage provided on or after January 1, 2014. The first information returns will be filed in 2015.
25. What information must be reported to the IRS?
The return is on a form provided by the IRS and must contain the following information:
- the name, address, and taxpayer identification number (TIN) of the primary insured (this term is undefined but most likely refers to employees and not family members), and the name and TIN of each other individual obtaining coverage under the policy;
- the dates during which the individual was covered during the calendar year;
- if the coverage is health insurance coverage, whether the coverage is a qualified health plan (QHP) offered through a health benefit exchange;
- if the coverage is health insurance coverage and that coverage is a QHP, the amount of any advance cost-sharing reduction payment or of any premium tax credit with respect to such coverage; and
- any other information required by the IRS.
In addition, if health insurance coverage is through an employer-provided group health plan, the return must contain the following information:
- the name, address, and employer identification number (EIN) of the employer maintaining the plan;
- the portion of the premium (if any) required to be paid by the employer; and
- any other information the IRS may require to administer the new tax credit for health insurance for eligible small employers.
26. What statement must be furnished to covered individuals?
The person who is required to report the health insurance coverage to the IRS (as described above in Q24) must also furnish a written statement to each individual whose name must be included in the information return. This statement must include:
- the name, address, and contact information of the reporting person; and
- the information required to be shown on the return with respect to that individual (discussed in Q25).
This statement must be furnished to the covered individual on or before January 31 of the year following the calendar year for which the information was required to be reported to the IRS.
27. What is the sanction for noncompliance with this reporting requirement?
An employer that fails to comply with these reporting requirements is subject to penalties for failure to file an information return and failure to furnish payee statements.