Reporting Costs of Health Insurance on Employee W-2s: New Requirements

Transcription

1 Presenting a live 110-minute teleconference with interactive Q&A Reporting Costs of Health Insurance on Employee W-2s: New Requirements Mastering the Procedures for Disclosing and Valuing Coverage Starting in 2013 THURSDAY, DECEMBER 20, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Norbert Kugele, Partner, Warner Norcross & Judd, Grand Rapids, Mich. Andy Anderson, Partner, Morgan Lewis & Bockius, Chicago For this program, attendees must listen to the audio over the telephone. Please refer to the instructions ed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at ext. 10.

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5 Reporting Costs of Health Insurance on Employee W-2s: New Requirements Seminar Dec. 20, 2012 Andy Anderson, Morgan Lewis & Bockius Norbert Kugele, Warner Norcross & Judd

6 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

7 Agenda 7 Overview Employers subject to reporting requirement Applicable employer-sponsored coverage Aggregate cost Inclusions, exclusions, calculation methods Form W-2 reporting Planning considerations Questions 7

8 Overview 8 Patient Protection and Affordable Care Act Aggregate cost of applicable employer-sponsored coverage to be reported on Form W-2. Dress rehearsal for Cadillac tax in 2018 IRS Notice IRS Notice IRS Notice Effective for 2012 Forms W-2 issued in January 2013 IRS Web site FAQs and chart updated May 2,

9 Employers Subject To Reporting Requirement 9 All employers, unless specifically excluded Who is excluded: Employers who filed fewer than 250 forms W-2 for the previous year E.g., employers filing fewer than forms W-2 (issued in January 2012) not required to report on 2012 forms W-2 (issued in January 2013) Federally recognized Indian tribal governments 9

10 Applicable Employer-Sponsored Coverage 10 Applicable employer-sponsored coverage is: Coverage under any employer-provided group health plan that is non-taxable to the employee Includes coverage for civilian employees under government plans 10

11 Applicable Employer-Sponsored Coverage (Cont.) 11 Group health plan Any plan of, or contributed to by, an employer (or employee organization) to provide healthcare Insured or self-insured Good-faith application of a reasonable interpretation of rules 11

12 12 Applicable Employer-Sponsored Coverage (Cont.) Applicable employer-sponsored coverage excludes: HIPAA excepted benefits (other than on-site clinics) Accident, disability and AD&D insurance Workers compensation insurance Liability insurance Long-term care Separate policy substantially for treatment of mouth or eyes Independent, non-coordinated benefits Specified disease, hospital or fixed-indemnity insurance 12

13 Aggregate Cost 13 Total cost of coverage under all applicable employer-sponsored coverage Aggregate cost includes: Costs paid by the employer and employee (pre-tax and post-tax premiums) Even if included in the employee s gross income Domestic partner Dependent older than 26 13

14 Aggregate Cost (Cont.) 14 Excluded from aggregate cost: Archer MSAs HSAs Salary reductions-only FSAs Special rule for FSAs with ER credits, match, etc. Governmental plans for military 14

15 15 Aggregate Cost (Cont.) Additional exclusions (until future guidance is issued): Multi-employer plans HRAs Stand-alone dental and vision plans EAPs, on-site clinics, wellness IF no COBRA premiums Self-insured church and other plans that are not subject to federal COBRA Any change to the transition relief will apply prospectively and will not apply to any calendar year beginning within six months of its issuance. If guidance issued by 6/30/12, then no earlier than 2013 If guidance issued by 7/30/12, then no earlier than

16 Aggregate Cost (Cont.) 16 Aggregate cost to be determined under rules similar to COBRA premiums Good-faith compliance No additional COBRA pricing guidance offered A welcome omission! 16

17 Aggregate Cost: Calculation Methods 17 COBRA applicable premium method (minus 2%) Premium charged method for insured plans Modified COBRA premium method for employer-subsidized coverage or if employer bases COBRA on prior-year premiums Also: Special rules for composite rates (e.g., single coverage class) Special rules for determining whether to include health FSA contributions (employer flex credits) 17

18 Aggregate Cost: More Rules Cost is determined on a calendar-year basis. Employers must track changes to the costs and coverage occurring during the calendar year. Mid-year cost changes When employees commence, change or terminate coverage Employer can use any reasonable method to determine the cost. New employees mid-month: Cost at beginning or end of month, or pro-rate Terminated employees: May report COBRA costs (or not) Can ignore retroactive changes after year-end Must be consistent for all employees in plan 18

19 Drilling Into The Details

20 Example Of Benefits To Be Included 20 Widget Company has 340 employees in 2011 and offers the following benefits: Major medical: Reported Dental (self-insured, integrated with medical): Reported Vision (non-integrated, insured): Must be excluded HRA: Need not be reported Health FSA with employer and employee contributions: Employee s contributions are not reported. Employer contributions are reported IF the employee s total salary reductions are less than the value of the Health FSA. 20

21 Example Of Reporting Requirements 21 EAP: Must report if COBRA premiums are charged to employee; Executive physicals: Reported Life insurance benefits: Not reported AFLAC supplemental insurance purchased through cafeteria plan: Reported Travel insurance program: Probably must be excluded 21

22 22 When Must Information Be Included On The W-2? Must begin reporting on 2012 W-2s issued beginning in January 2013 Thereafter, on all W-2s that are issued Includes W-2s issued to terminating employees who request an immediate W-2 Aggregate cost of applicable employer-sponsored coverage is reported in Box 12, Code DD. 22

23 What About Terminated Employees? 23 Transitional relief options: Cost of coverage for portion of year covered as active employee Ignore COBRA Must use consistently for all terminated employees Costs of both pre- and post-employment coverage During 2012 only; not required to report costs on early W-2s issued before January 2013 No reporting is required for an individual to whom the employer is not otherwise required to issue a Form W-2, such as a retiree or former employee receiving no compensation. 23

24 How Do We Calculate The Cost Of Coverage? 24 Must include both the employer and employee cost, whether pre-tax or after-tax Exception: Health FSAs (see next slide) Include cost of coverage for employees and dependents, including imputed income No breakdown on a per-plan basis Aggregate numbers only 24

25 Special Rules For Contributions To Health FSA 25 Employee contributions are NEVER included. Employer contributions may have to be reported. Examples of employer contributions: Flex dollars used to fund health FSA Employer matching dollars contributed to a health FSA Employer seed money contributions to a health FSA Report employer s contributions only if total amount of employee s cafeteria plan salary reduction is less than value of health FSA Example: Flex dollars $1,000, employee salary reduction $1,000, health FSA election $1,200 May want to document an ordering rule 25

26 How Do We Calculate The Cost Of Coverage? (Cont.) 26 Premium charged method (insured plans); Use the amount charged by insurer for that employee s coverage COBRA applicable premium method (IRC 4980B(f)(4)) Cost to the plan of providing the coverage Self-insured plan: Actuarially determined reasonable estimate Historical cost adjusted for inflation 26

27 27 How Do We Calculate The Cost Of Coverage? (Cont.) Modified COBRA premium method Employer subsidizes cost of COBRA coverage. May use a reasonable good faith estimate of the full COBRA premium for W-2 reporting purposes Using prior year s COBRA cost for this year s COBRA premium May use the same number for W-2 reporting purposes 27

28 Employers Using Composite Rates 28 What is a composite rate? Single coverage class under the plan (everyone pays the same, regardless of single or dependent coverage) Different coverage classes; charge same premium within each coverage class Can use these rates for W-2 reporting purposes If consistently use composite rates for active employees and different rates for COBRA: May use either composite rate or COBRA rate 28

29 Common Paymaster Rule 29 Related employers who concurrently employ an individual One employer is common paymaster: Common paymaster reports cost on W-2 If no common paymaster, either: One employer reports full cost of coverage on W-2, or Allocate cost of coverage among all employers 29

30 30 Other Factors In Calculating Cost Of Coverage No administrative fee included Different methods for different plans permitted Not aggregated on W-3, transmittal of wage and tax statements COBRA rules are vague use methods that seem reasonable Be consistent! 30

31 What About Mid-Year Changes? 31 Must be based on a calendar-year basis for all employees, regardless of the plan year Must take into account any changes in coverage for the employee during the year Any reasonable method is permitted: Beginning of period cost, End of period cost, Average cost over period, or Prorated period cost Consistency is key. 31

32 What About Retroactive Changes? 32 Example: Employee has a new baby in late December 2012, but you re not notified until Health plan coverage is retroactive to date of baby s birth. What is the reportable cost for 2012? Use known cost as of December 31. No duty to issue a corrected W-2 if learn of retroactive change after W-2 has issued 32

33 What About Payroll Periods That Span Calendar Years? 33 Employer has options: Treat all the coverage as provided during the calendar year that includes December 31 Treat the coverage as provided during next calendar year Allocate the cost of coverage between each of the two calendar years under any reasonable allocation method Method should relate to the number of days in each year. Consistency is important. 33

34 Who Is Responsible For Reporting? 34 Final responsibility is with the employer. Discuss payroll/hris programming changes to capture COBRA cost of coverage If rely on third-party vendors, address contractually Caution: Some of their advice may not be correct! Penalties for failing to file or furnish a correct W-2 will apply. 34

35 Where Can I Get More Information? IRS Notice , amended Notice Payroll administrators Employee benefits legal counsel 35