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Regulation and Compliance > Federal Regulation > IRS

IRS Adds W-2 Group Health Spending Option

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Employers that would like to report how much they spend on group health coverage for each employee will have a chance to do so in 2011.

The Internal Revenue Service (IRS), an arm of the U.S. Treasury Department, has decided to include health expense codes that employers can use, but do not have to use, in the draft version of the 2011 W-2 wage tax withholding form.

Section 9002 of the Patient Protection and Affordable Care Act (PPACA), a component of the Affordable Care Act, has added a provision to the Internal Revenue Code, Section 6051(a)(14), that requires employers to report the cost of employer-sponsored health coverage on employees’ W-2s starting with taxable years beginning on or after Jan. 1, 2011.

The Treasury Department and the IRS have decided to postpone implementation of the provision to give employers more time to change payroll systems and procedures to prepare for the new reporting requirement, officials say.

“The IRS will be publishing guidance on the new requirement later this year,” officials say.

Federal budget analysts have argued for years that the group health tax deduction costs the government a large amount of tax revenue, and the Affordable Care Act is set to impose a “Cadillac plan” excise tax on some high-cost plans starting in 2018. But group health payments will not be taxable in 2011, and the W-2 reporting codes are for informational purposes only, officials say.

IRS officials give more details about the draft W-2 group health payment reporting codes in IRS Notice 2010-69.

Through the notice, the IRS is providing interim relief in connection with Section 6051(a)(14) in 2011. “An employer will not be treated as failing to meet the requirements of Section 6051 for 2011, and will not be subject to any penalties for failure to meet such requirements, merely because it does not report the aggregate cost of employer-sponsored coverage … on Forms W-2 issued for 2011,” officials say.

Stephanie Cutter, an assistant to President Obama, says in a White House blog entry that opponents of health reform have spread false rumors indicating that group health expenditures would be taxed in 2011. “The claim wasn’t true when the rumor first surfaced, it isn’t true today and it won’t be true tomorrow,” Cutter says.


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