Reporting the value of health benefit coverage on workers W-2, prepare your systems for 2011

The Patient Protection and Affordable Care Act (PPACA) provides that employers must include the cost of health benefits on each employees W-2 for calendar year 2011.

In fact, here is exactly what the PPACA says (in its own convoluted way):

SEC. 9002. INCLUSION OF COST OF EMPLOYER-SPONSORED HEALTH COVERAGE ON W–2. 

(a)    IN GENERAL.—Section 6051(a) of the Internal Revenue Code of 1986 (relating to receipts for employees) is amended by striking ‘‘and’’ at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting ‘‘, and’’, and by adding after paragraph (13) the following new paragraph:‘‘(14) the aggregate cost (determined under rules similar to the rules of section 4980B(f)(4)) of applicable employer-sponsored coverage (as defined in section 4980I(d)(1)), except that

this paragraph shall not apply to— 

‘‘(A) coverage to which paragraphs (11) and (12) apply, or 

‘‘(B) the amount of any salary reduction contributions to a flexible spending arrangement (within the meaning of section 125).’’ 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2010. 

So what does all this mean, simply put it boils down to taking the COBRA premium (less the 2% administration charge) for the coverage an employee has during the year and putting that amount on the workers W-2 for 2011. That is, if the monthly COBRA premium is $700 per month and the worker is covered for the entire year, $8400 is reported on the W-2 for 2011.  It is unclear and unstated why this is necessary, perhaps as a way to check that individuals have health insurance through an employer, perhaps for future use (dare we say taxation of the benefit – pure speculation at this point). 

Employers that offer several health care plans and perhaps three or four tier premiums are going to face some interesting challenges in gathering and placing this information on the W-2 as there will be many variables.  This implies some interface between the benefits record keeper and the payroll department or payroll vendor.  Remember, new hires, terminations, qualified status changes mid-year may all affect the final amount on the W-2.   Get cracking, there is work to be done (you mean you are too busy already?).

For further clarification, here is what Aon Consulting says about this issue: 

What health benefit amounts will be reported on Forms W-2?  

Employers must include on annual Forms W-2 the aggregate cost of group health plan benefits (excluding FSA, HSA, or Archer MSA contributions, or the cost of long term care, and certain other excepted benefits) provided to employees for taxable years beginning on or after January 1, 2011 (i.e., Forms W-2 issued in 2012 for 2011 wages, and issued thereafter for subsequent years). 

Employers can calculate the reportable value based on a methodology similar to that used under COBRA (minus the 2% COBRA administrative fee, if charged). If the plan provides for the same COBRA continuation coverage premium for both individual coverage and family coverage, the plan would be required to calculate separate individual and family premiums for this purpose.