Obamacare makes for fuzzy W2 filing requirements...
On March 23, 2010, President Obama signed the Affordable Care Act (ACA) into law, this health care legislation has since come to be known as Obamacare. The ACA continues to have significant employment tax and information reporting implications for businesses. Originally, effective in 2011, the value of employer-sponsored health insurance was to be reported on Form W-2. IRS Notice 2010-69 made the filing optional for all in employers in 2011 and Notice 2011-28 extended to small businesses the option to postpone reporting until at least 2013.
The ACA required that employers report the cost of insurance coverage under the employer-sponsored group health plan. Just because the cost of the insurance benefit is reported on the employee’s W-2 does not mean that the coverage is taxable. Any value of the employer’s excludable contribution to the health care plan remains excludable from an employee’s income, and remains non-taxable. The W-2 reporting requirement is for informational purposes only and will provide employees with useful information on the cost of their health care coverage.
Employers that provide “applicable employer –sponsored coverage” under a group health plan are subject to this reporting requirement. This includes businesses, tax-exempt organizations, and federal, state, and local government entities. Federally recognized Indian tribal governments are not subject to this requirement.
For purposes of this reporting requirement, “applicable employer-sponsored coverage” includes coverage under any group health plan made available to an employee by the employer, regardless of whether the employer or the employee pays the cost.
What is NOT included as an “applicable employer-sponsored coverage”?
The IRS has stated that applicable employer-sponsored coverage does not include:
- Stand-alone dental or vision coverage (if it qualifies as a "HIPAA-excepted" benefit)
- Contributions to an Archer medical savings account (MSA), health savings account (HSA) and salary reductions into a medical FSA (employer flex credits to a medical FSA are reportable)
- Health reimbursement arrangement (HRA)
- Coverage under an employee assistance program (EAP), wellness program or on-site medical clinic, provided that the employer does not charge a premium with respect to that type of coverage provided under COBRA
- Coverage only for a specified disease (if it qualifies as a “HIPAA-excepted” benefit and is paid for on an after-tax basis by the employee)
- Coverage for long-term care
- Accident-only insurance coverage
- Hospital indemnity or other fixed indemnity insurance (if it qualifies as a “HIPAA-excepted” benefit, if the employer makes no contribution to the cost of coverage that is excludable from an employee's gross income, and if the premium is paid for on an after-tax basis by the employee)
- Contributions made on behalf of an employee to a multi-employer plan
If you weren’t confused before reading this, I am sure you are by now. The changes taking place as a result of ACA continue to create issues for the IRS and taxpayer’s alike. So should you or should you not report, well it's best to find out since the Small Business Job’s Act of 2010, increased the penalties for incorrectly or untimely filed W-2 forms:
- $30 per return if the Form W-2 is filed correctly within 30 days (maximum penalty is $250,000 per year). For small businesses (gross receipts of $5,000,000) has a maximum penalty of $75,000/yr.
- $60 per return if the Form W-2 is correctly filed more than 30 days after the due date but by August 1. (maximum penalty is $500,000/yr. and $200,000/yr. for small businesses)
- $100 per return if the Form W-2 is correctly filed after August 1. . (maximum penalty is $1,500,000/yr. and $500,000/yr. for small businesses)
- The penalty for failure to furnish a correct W-2 to an employee increases to $100 per return with a maximum penalty of $1,500,000.
If you have questions about your company’s health care plan, or what should or should not be reported on the employee’s W-2, you need to seek the assistance of your Accountant, or Tax Advisor. As the payroll year end is speedily approaching it's best to find out sooner, than later.