IRS Announces Interim Relief to New Form W-2 Requirements

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On October 12, the Internal Revenue Service (IRS) issued revised direction regarding reporting requirements for employer-sponsored group health insurance. Specifically, IRS Notice 2010-69 extends the deadline for reporting the cost of such coverage on the annual Form W-2 ("Wage and Tax Statement"). This reporting will be optional — not mandatory — for W-2s issued for the 2011 tax year.

The Treasury Department and the IRS have determined that this postponement will provide employers with ample time for transitioning payroll systems and procedures to comply with the reporting requirement.

As mandated by the Patient Protection and Affordable Care Act, costs must be reported for the following plans and services: (a) medical plans, (b) prescription drug plans, (c) executive physicals, (d) on-site clinics which provide more than de minimus care, (e) Medicare supplemental policies, (f) employee assistance programs, and (g) dental and vision plans, unless they are "stand-alone" plans.

In addition, the IRS issued a Form W-2 Wage and Tax Statement Draft, which employers should follow as they calculate and report wages and the aggregate cost of applicable employer-sponsored health insurance coverage for their employees. The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only and to provide employees with greater transparency into overall health care costs.

The IRS will be publishing guidance on the new requirement later this year.