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W-2s For Health Insurance Begin Sooner Than You Think

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The health care reform law requires you to report the value of employees' health insurance on their W-2s, for benefits provided beginning in 2011 (i.e., W-2s filed beginning in 2012). Wrinkle: You must honor terminating employees' requests for their W-2s by the later of 30 days after their request or the last payment of wages. Bottom line: Payroll systems will need to be adjusted by early February 2011, for employees who terminate in January and request their W-2s early.

 

What's reportable. The aggregate value (i.e., the employer and employee shares) of any group health insurance that's excludable from employees' income under tax code Section 106 must be reported. This includes, for example, major medical plans, prescription drug plans, dental and vision plans that aren't stand-alone plans, on-site clinics providing more than de minimis services, TRICARE supplement policies, and employee assistance plans (EAPs). Employees' pre-tax contributions into health flexible spending accounts or health savings accounts, long-term care insurance, and specific disease or hospital/fixed indemnity plans aren't reportable.

 

Valuing health benefits. The method of determining the value of health benefits is the same as the method used to value COBRA benefits, minus the 2% administrative charge. The IRS is currently developing guidance on COBRA valuation, but a release date is unclear. Another wrinkle: There's no way to value on-site clinics or EAPs. You must use the same value for all similarly situated employees who receive the same category of coverage (i.e., self-only or family coverage). Watch out: If the plan charges the same COBRA premium for self-only and family coverage, you must calculate separate self-only and family premiums.

 

Flying Blind For Now: Whether there will be a new W-2 Box 12 code for this new reporting requirement is unknown at this time, since the IRS has yet to issue any guidance. Be aware that if you must provide an early W-2, you may have to provide a Form W-2c later, if what you reported was incorrect.

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