Performance Thinking

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Fall 2012

W-2 Reporting of Health Care Costs. Are You Ready?

The Patient Protection and Affordable Care Act (“PPACA”) is the single largest piece of domestic policy legislation in the last 45 years. The Act has been described as having the potential to “drown employers in new and far reaching compliance requirements.” It requires among other things that the aggregate cost of employer-sponsored health coverage be reported on Form W-2.

The IRS has emphasized that this new reporting to employees is for informational purposes only, and does not cause otherwise excludable employer-provided health coverage to become taxable. What is the purpose of the reporting requirement? Any adult without health insurance by 2014 will have to pay a penalty; this reporting will enable the IRS to identify those taxpayers who do, and do not, have coverage. Also, the reporting will assist in identifying those taxpayers whose employers will be subject to a 40% excise tax, commonly referred to as the “Cadillac tax,” on high-dollar insurance plans beginning in 2018.

The reporting requirement was scheduled to become effective for the 2011 tax year (W-2’s issued in January of 2012), but the IRS issued a notice delaying enforcement of the requirement until the 2012 tax year (W-2’s issued in January of 2013). This means reporting for 2011 was voluntary; but now the failure to comply with these reporting requirements results in a penalty of $200 per W-2, up to a maximum of $3 million.