When the Patient Protection and Affordable Care Act was signed into law by President Obama in March 2010, one of the provisions that employers immediately recognized as potentially burdensome was the requirement that the cost of employer-sponsored group health plan coverage be included on an employee’s Form W-2.

While this requirement was originally scheduled to be effective for taxable years beginning on or after Jan, 1, 2011, the Internal Revenue Service granted a one year extension in late 2010 so that the requirement now applies beginning with the 2012 Forms W-2.

Two potentially significant issues that were immediately identified by employers under this new enhanced reporting requirement were how small employers and retiree health care plans would be impacted.

In Notice 2011-28, which was published by the IRS on March 29, 2011, guidance is now available with respect to both of these issues.

Small employer exception

While the general rule is that all employers that provide employer-sponsored group health plan coverage during a calendar year are subject to the enhanced Form W-2 reporting requirement, a limited exception now exists for small employers.

Specifically, in the case of the 2012 Form W-2 (which must be delivered to employees on or before Jan. 31, 2013), an employer is not subject to the enhanced reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year.

Consequently, if an employer files fewer than 250 2011 Forms W-2, the employer would not be subject to the enhanced reporting requirement for the 2012 Forms W-2.

This exception will be very helpful to those employers that do not reach the 250 Forms W-2 threshold. In addition, while the exception specifically applies with respect to the 2012 Form W-2, the exception is available until the issuance of further guidance.

Therefore, it is possible that this exception will be extended into later taxable years.

In any event, the earliest that such small employers would be required to comply is the 2013 Forms W-2 in January 2014. While the exception applies with respect to the 2012 Forms W-2, the determination of whether the 250 Form W-2 threshold has been reached is based on the prior year (i.e., 2011).

However, it is important that employers who may be eligible for this small employer exception in 2012 are aware of the exception throughout 2011.

Retiree health care plans

Upon passage of the PPACA, there was concern about whether the enhanced Form W-2 reporting requirement would be applied to retirees that receive medical coverage under an employer-sponsored retiree health care plan.

Notice 2011-28 confirms that a Form W-2 is not required in this scenario, as an employer is not required to issue a Form W-2 including the aggregate reportable cost to an individual to whom the employer is not otherwise required to issue a Form W-2.

Therefore, individuals such as retirees or other former employees receiving no compensation from the employer do not need to receive a Form W-2 based solely upon the newly enhanced reporting obligation related to employer-sponsored group health plans.

The guidance that the Form W-2 reporting requirement does not apply to retirees receiving health care coverage resolves a key outstanding issue under PPACA and will be greeted favorably by employers offering such coverage.

In addition, by not having to an issue a Form W-2 to these individuals, such individuals will not be counted with respect to the 250 Forms W-2 threshold for the small employer exception noted above.

Notice 2011-28 is very helpful in resolving two of the key questions that remained with respect to the enhanced Form W-2 reporting requirements related to employer-sponsored group health plans.

Employers should consult with their employee benefits counsel and tax advisors to determine the impact that this guidance will have on their reporting obligations.

Gradisek can be reached at wmgradisek@duanemorris.com and Collins at tbcollins@duanemorris.com.  

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