If dealing with year-end 2011 hasn’t caused enough anxiety, lurking just around the corner is W-2 reporting of employees’ health benefits. If you’ll be filing at least 250 W-2s for 2012, and you don’t have a self-insured plan that’s not subject to COBRA, you’re on the hook for health care reporting, beginning with next year’s W-2s.
By taking three simple steps now, however, you can tame this monster, even before it rears its ugly head.
Step 1: Who’s excluded. Terminating employees who request early W-2s are excluded from reporting.
Suggestion: Have terminating employees sign early W-2 request forms as part of the exit interview process.
Retirees who receive health benefits, but no other reportable compensation, are also excluded.
Watch out: You may have to create separate categories of retirees—those who receive only health benefits and those who receive health benefits and group-term life insurance. Retirees who fall into the latter category must receive W-2s on which their health benefits are reported.
Step 2: Review your records. Employees who cover their unmarried domestic partners or adult children who are at least 27 years old must pay for this coverage on an after-tax basis. You’ll need to know who these employees are, because the amount you’ll be reporting includes these amounts.
Step 3: Talk to Benefits. Your Benefits department must provide you with cost information at least monthly.
What’s reportable: The aggregate cost—the COBRA amount, minus the 2% surcharge—of the employer’s contributions and employees’ pretax and after-tax contributions for any group health insurance that’s excludable from employees’ income under tax code Section 106 (i.e., 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).
You will also need to get the amount in employees’ health flexible spending accounts (FSAs).
Rule: Employers’ contributions are reportable if the value of employees’ health FSAs exceeds their pretax contributions.
Key: You must track the accrual of employer contributions, paying attention to employees who terminate midyear and to FSAs that aren’t calendar-year plans.
Your conversation with Benefits—and its monthly reports to you—must be ongoing, since increases or decreases in the aggregate cost, or changes to employees’ coverage, must be reported.
Heads up: If a change occurs in the middle of a month, you may use any reasonable method to determine the reportable cost for that month. Whatever method you choose, you must apply it to everyone.