PPACA world: Meet IRC Section 6051(a)(14)

Generally, an employer can use the COBRA premium to calculate the value of the coverage to be reported.

If the health plan is insured, an employer can use the premium charged by the insurer for that employee’s coverage (as applicable to the employee) as the reportable cost.

This Box 12DD total should not include contributions to health savings accounts (HSAs) or most contributions to flexible spending arrangements (FSAs).

The Box 12DD total should include spending on:

• Major medical coverage.
• A health FSA for the plan year in excess of an employee’s cafeteria plan salary reduction for all qualified benefits.
• A hospital indemnity arrangement or specified illness arrangement (either insured or self-funded), paid through a pretax salary reduction program or by the employer.
• Domestic partner coverage included in gross income.

This reporting, while required, is informational only. It gives employers an opportunity to show employees how much the employees receive in benefits.

While this provision sounds easy enough to implement, it will require most employers to program the integration of this data into their W-2 reporting. That’s no easy task, given that a system for generating this data for all active employees during a calendar year is not standard in most payroll or human resources information systems.

Depending on how an employer handles payroll, benefits and W-2 reporting, it might need need new systems or support services to gather all of the data required in a timely fashion.

On the bright side: Regulators developed the 6051(a)(14) regulations early enough that employers and their vendors were able to get the systems needed developed and tested in time to implement the changes on time, per the law.

See also:

• Health care reform FAQ: What reporting is required by employers?
• IRS Releases W-2 Group Health Guidelines
• IRS Adds W-2 Group Health Spending Option