The Employers Council on Flexible Compensation (ECFC) is asking the Internal Revenue Service (IRS) to clarify where flexible spending arrangements (FSAs) fit in with the new Form W-2 health benefits reporting requirements.
John Hickman, a lawyer representing the ECFC, Washington, has made that request in a comment letter on IRS Notice 2011-28, a document gives interim guidance on how employers should comply with the new W-2 reporting requirements created by Section 6051(a)(14) of the Patient Protection and Affordable Care Act of 2010 (PPACA).
PPACA is supposed to impose the Cadillac plan tax in 2018. The 40% tax will apply to health plan value over a specified threshold.
To implement that provision, and to give federal policymakers more information about expenditures on group health benefits, the IRS will be asking for voluntary reports on group health expenditures on the 2011 W-2 and requiring employers to provide group health expenditure reports on the 2012 W-2.
The Notices 2011-28 will exempt small employers and employers that sponsor health reimbursement arrangements (HRAs) from the reporting requirements, at least temporarily.
IRS officials note that they were still working on some projects that they need to complete before coming out with complete, permanent W-2 health cost reporting guidance, such as guidance on calculating the value of the “applicable premium” under the federal COBRA health benefits continuation program.
The ECFC – a group that represents about 100 employers, insurers, accounting firms, consulting firms and actuarial firms with an interest in FSAs, HRAs, dependent care accounts, and other types of benefit plans, arrangements and accounts – would like to see the IRS wait until complete guidance is available to apply the reporting requirement, Hickman says the ECFC comment letter.
How to value some of benefits, such as health clinics, is unclear, and employers need to know how the new Internal Revenue Code Section 4980I Cadillac plan excise tax will work before making W-2 reporting decisions, Hickman says.
“The methods that an employer may choose to determine cost under the notice may produce very different values,” Hickman says. “When the high cost plan tax is effective, these differences may become very significant. For example, whether the high cost plan tax is imposed may depend on the particular valuation method used, even if two plans have the same fair market values.”