The Internal Revenue Service (IRS) has given more advice about how employers, benefit plan administrators and others should go about applying the new Form W-2 health benefits cost reporting requirements.
Employers do have to include the cost of any supplemental health benefits, such as cancer insurance, that they pay for, but they do not have to include the cost of supplemental health benefits that the employees pay for with after-tax dollars, IRS officials say in IRS Notice 2012-9.
IRS also have spelled out the reporting rules for flexible spending accounts (FSAs).
The W-2 reporting requirements were created by Section 6051(a)(14) of the Patient Protection and Affordable Care Act of 2010 (PPACA).
Employers use Form W-2 to record payments to employees.
PPACA is supposed to add a Cadillac plan tax in 2018. The 40% tax will apply to health plan value over a specified threshold.
To implement the provision, and to give federal policymakers more information about expenditures on group health benefits, the IRS is asking for voluntary reports on group health expenditures on the 2011 W-2 and will be requiring employers to provide group health expenditure reports on the 2012 W-2.
Benefits advisors have wondered how hospital indemnity insurance, critical illness insurance, FSAs and other health benefits other than plain vanilla major medical coverage might fit into the new reporting system.
Officials say in the answer to the 37th question that employers must include the cost of fixed indemnity coverage in the health benefits cost total reported on the W-2.