ACA Provisions: What You Need to Know
Speaker 1: I would now like to formally begin today's teleconference and introduce, Tennille Francis.
Tennille: Thank you, Eddie. Good afternoon everyone, and thank you for joining us for today's presentation. Again, I am Tennille Francis, a Tax Law Specialist with the Federal, State and Local governments Division of the IRS.
We are so pleased that you could be with us this afternoon to share this vital information regarding the Affordable Care Act provision. Today's presentation will cover two of the many provisions impacting federal, state, and local government employers. The W-2 reporting of employer-sponsored health care coverage and the Additional Medicare Tax on high income earners.
TENNILLE: Leading today's presentation are Andrew Holubeck and Karen Levin, both of the IRS Office of Chief Counsel. By way of introduction, Andrew is an attorney in the IRS Office of Chief Counsel's Employment Tax Branch. Andrew was one of the drafting attorneys for the proposed Additional Medicare Tax regulations and he continues to work on drafting, editing, and reviewing documents and information related to the Additional Medicare Tax.
Karen is an attorney with the IRS Office of Chief Counsel's Health and Welfare branch. Karen focuses on regulatory issues affecting employer healthcare benefits, and has recently worked to prepare regulations to implement provisions of the Affordable Care Act.
TENNILLE: Andrew and Karen bring a wealth of knowledge on the provisions we're going to discuss today, and they are going to walk you through what you need to know to be compliant.
Before we start the presentation, I just want to acknowledge that we know many of you submitted questions prior to today's presentation. Although we will try our best to answer those questions, we may not address them all. If your question is not addressed or you have additional questions after this presentation, please email them to mailto:firstname.lastname@example.org with a subject line: ACA phone forum. Thank you for letting us serve you, and, without further ado, I will turn the presentation over to Andrew and Karen.
Andrew Holubeck: Thank you, Tennille. This is Andrew Holubeck, and I'll be talking on the Additional Medicare Tax. Basically, I've divided this discussion of Additional Medicare Tax into four parts.
First, I'll give a brief overview of what Additional Medicare Tax is.
Second, I'm going to discuss various issues related to employer withholding of Additional Medicare Tax.
Third, I want to talk about how individual taxpayers report their Additional Medicare Tax liability and withholding on their individual Federal Income Tax Returns and what this means for employers.
Finally, I'll explain how employers can correct withholding errors for Additional Medicare Tax.
ANDREW: Let's begin with an overview. Additional Medicare Tax is part of the Affordable Care Act. It is a 0.9% tax on all wages, railroad retirement compensation, and self-employment income that exceed a certain threshold amount. These threshold amounts are based on the taxpayer's filing status. So for a married couple filing jointly, the threshold is $250,000. For a married couple filing separately, each spouse's threshold is $125,000. And for an individual filing as single or head of household, the threshold is $200,000.
Taxpayers must combine wages and self-employment income to determine if their income exceeds the threshold. However, railroad retirement compensation is not combined with self-employment income to determine the threshold amount but they will compare railroad retirement compensation separately to the threshold.
ANDREW: Now there's an Additional Medicare Tax withholding requirement for employers. Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on any Medicare wages paid to an employee in excess of $200,000 in a calendar year, without regard to the employee's filing status.
Employers should begin withholding Additional Medicare Tax in the pay period in which they pay wages in excess of $200,000 to an employee. They continue to withhold it each pay period until the end of the year. There is no employer match for Additional Medicare Tax.
ANDREW: That's pretty much the basics of Additional Medicare Tax. Now I want to talk in a little bit more detail about employer withholding. First, I want to reiterate that Additional Medicare Tax withholding applies only to the wages that exceed the $200,000 withholding threshold.
For example, one question that has come up about Additional Medicare Tax concerns what happens if a single payment of wages to an employee exceeds the $200,000 withholding threshold.
Will an employer withhold Additional Medicare Tax on the entire payment? The answer to this is no.
As I mentioned earlier, Additional Medicare Tax withholding applies only to the wages paid to an employee that are in excess of $200,000 in a calendar year. Withholding rules for this tax are different than the income tax withholding rules for supplemental wages in excess of a million dollars.
ANDREW: Let me give you an example to better explain this. Let's say an employee, Michael, received $180,000 in wages through November 30th of this year, 2013. On December 1st, 2013, Michael's employer paid him a bonus of $50,000.
Michael's employer is required to withhold Additional Medicare Tax on $30,000 of the $50,000 bonus and may not withhold Additional Medicare Tax on the other $20,000, so basically only on the $30,000 that exceeds that $200,000 threshold. Michael's employer also must withhold Additional Medicare Tax on any other wages paid in December of 2013, because Michael's already exceeded the $200,000 threshold.
ANDREW: I also must clarify what we mean, when we say that employers must withhold without regard to filing status. I think
I can best illustrate this through another example. Say an employer has two employees who are married to each other. Each earns $150,000 so the employer knows that their combined wages will exceed the $250,000 threshold applicable to married couples that file jointly. Does the employer need to withhold Additional Medicare Tax?
The answer is no. An employer should not combine wages it pays to two married employees to determine whether to withhold Additional Medicare Tax. An employer is required to withhold the tax only when it pays wages in excess of $200,000 in a calendar year to an employee.
ANDREW: Now, any Medicare wages currently subject to Medicare tax withholding are subject to Additional Medicare Tax withholding if over the $200,000 withholding threshold. For more information on what wages are subject to Medicare tax, see the chart on Special Rules for Various Types of Services and Payments in Section 15 of Publication 15 (Circular E). That should be easy enough to remember, 15 of 15.
Additionally, there are no special rules for nonresident aliens and U.S. citizens living abroad for purposes of Additional Medicare Tax.
ANDREW: The rules for non-cash wages and Medicare tax also apply to Additional Medicare Tax. So Additional Medicare Tax on non-cash wages must be withheld from other wages paid to an employee. For example, if a fringe benefit is furnished to an employee, Additional Medicare Tax on the fringe benefit will be withheld from cash wages paid.
Tips are also subject to Additional Medicare Tax withholding if in combination with other wages paid by the employer, they exceed the $200,000 withholding threshold. If the employee does not receive enough wages for the employer to withhold all the taxes that the employee owes, including Additional Medicare Tax, the employee does have the option to give the employer money to pay the rest of the taxes.
Now if the employee does not give the employer money to pay the taxes, then the employer makes a current period adjustment on the employer's applicable employment tax return, such as Form 941, Employer’s Quarterly Federal Tax Return, to reflect any uncollected employee social security, Medicare, or Additional Medicare Tax on reported tips. However, unlike the uncollected portion of the regular Medicare tax, the uncollected Additional Medicare Tax is not reported in Box 12, Form W-2 with code B. The employee may need to make estimated tax payments to cover any shortage.
One last question on withholding concerns an agent who pays wages to an employee on behalf of an employer under an approved Form 2678, Employer Appointment of Agent. For purposes of determining whether wages are paid in excess of the $200,000 withholding threshold, should the agent combine those wages with wages paid to that same employee either: directly by the employer, by the same agent on behalf of a different employer, or by another agent on behalf of the same employer?
The answer for all of these is no. Wages paid by an agent with an approved Form 2678 on behalf of an employer should not be combined with wages paid to the same employee by any of these other parties in determining whether to withhold Additional Medicare Tax.
ANDREW: Now for some logistics information. To account for this new tax we added a new line, line 5d to Form 941, beginning in the first quarter of 2013.
Also note there will be no changes to Form W-2. Additional Medicare Tax withholding on Medicare wages will be reported in combination with withholding of regular Medicare tax, in Box 6 of Form W-2, “Medicare Tax Withheld.”
Now concerning employer deposits of Additional Medicare Tax, some may be wondering when an employer deposits Additional Medicare Tax through the Electronic Federal Tax Payment System, or EFTPS, does it need to separate Additional Medicare Tax from regular Medicare tax?
The answer is no. When providing the deposit details, regular Medicare tax and Additional Medicare Tax are entered as one combined amount.
ANDREW: Okay, now that we've gone a bit in-depth about Additional Medicare Tax withholding, I'd like to move on to how individuals will be calculating their Additional Medicare Tax liability.
Individuals liable for Additional Medicare Tax will calculate Additional Medicare Tax liability on their individual income tax returns, which is Form 1040. Individuals will also report Additional Medicare Tax withheld by their employers on their individual tax returns. Any Additional Medicare Tax withheld by an employer will be applied against all taxes shown on an individual's income tax return, including any Additional Medicare Tax liability.
ANDREW: Now this is relevant information for employers, because to the extent that Additional Medicare Tax is not withheld by the employer, the employee will be liable for the difference.
The employee will report this liability using their individual income tax return as I just described. However, if an employer does not meet its withholding and deposit requirements with respect to Additional Medicare Tax, it may be liable for penalties. In other words, if an employer fails to withhold the tax, but the employee subsequently pays the tax with their 1040 return filed the next year, then the tax will not be collected from the employer. But the employer will remain liable for failure to pay and failure to file penalties.
ANDREW: Now depending on filing status, other wages received, and self-employment income, an individual may owe more Additional Medicare Tax than what was withheld by an employer.
An example of this would be the situation I mentioned earlier, where spouses filing jointly each earn $150,000. Now in this situation, neither spouse earns over $200,000, so neither spouse's employer is going to withhold Additional Medicare Tax from their wages.
However, the combined wages of $300,000 exceed the Additional Medicare Tax threshold for couples filing jointly, which is $250,000, by $50,000. So they will have Additional Medicare Tax liability on $50,000, but they will have no withholding.
ANDREW: In such circumstances, employees cannot request additional withholding specifically for Additional Medicare Tax. However, they may request additional income tax withholding on Form W-4. In addition, individuals may need to consider making estimated tax payments to take into account Additional Medicare Tax. So any additional income tax withholding and/or estimated tax payments will be applied to any and all taxes on Form 1040, including Additional Medicare Tax.
ANDREW: Now conversely, some employees may have wages in excess of $200,000, but actually won't owe the tax, won't have any liability for Additional Medicare Tax.
An example of this, a married couple filing a joint return, one spouse has $225,000 in wages and a withholding for Additional Medicare Tax on $25,000, amount in excess of the $200,000 threshold but the other spouse has no income, so the couple's combined wages may not exceed the $250,000 threshold for joint filers.
This couple will not have Additional Medicare Tax liability, but they will have Additional Medicare Tax withholding.
Now even if an employee knows that this will be the case, he or she cannot ask the employer to stop withholding Additional Medicare Tax. The employer cannot honor requests to cease withholding Additional Medicare Tax if it is required to do so.
In other words, if the employer is paying wages in excess of $200,000 in a calendar year, the employer cannot honor requests to cease withholding Additional Medicare Tax since it is required to do so. The employee instead will claim credit for any withheld Additional Medicare Tax against the total tax liability shown on his or her individual income tax return, like I described earlier.
ANDREW: Now, the last issue I'd like to cover today is how employers correct errors in withholding Additional Medicare Tax. I'm going to do this by going over five different correction scenarios and that should pretty much cover all the various types of error corrections.
For the first scenario, if an employer underwithholds Additional Medicare Tax, for example fails to withhold a tax when it pays the employee wages in excess of $200,000 in a calendar year and discovers the error in the same year the wages are paid but after its Form 941 is filed, how can an employer correct this error?
ANDREW: Now the employer is liable for Additional Medicare Tax required to be withheld whether or not it deducted the tax from wages it pays to the employee. If the employer fails to withhold the correct amount of Additional Medicare Tax from wages it pays to an employee and discovers the error in the same year it pays the wages, the employer may correct the error.
Now this is done by making an interest-free adjustment on the appropriate corrective return, for example Form 941-X.
Once the employer has discovered the error, the employer should deduct the correct amount of Additional Medicare Tax from other wages or other remuneration, if any, it pays to the employee on or before the last day of the calendar year. However, even if the employer is not able to deduct the correct amount of Additional Medicare Tax from other wages it pays to the employee, the employer must report and pay the correct amount of Additional Medicare Tax on its return.
If the employer pays Additional Medicare Tax without having deducted it from wages or other remuneration it pays to the employee, the obligation of the employee to the employer, with respect to the payment, is a matter of settlement between the employer and the employee.
ANDREW: Okay. For the second scenario, let's say an employer overwithholds Additional Medicare Tax, for example, withholds the tax before it pays the employee wages in excess of $200,000 in a calendar year, and discovers the error in the same year the wages are paid, how can the employer correct this error?
In this situation the employer, again, may correct the error by making an interest-free adjustment on the appropriate corrective return, for example Form 941-X. The employer must first repay or reimburse the overwithheld amount to the employee prior to the end of the calendar year in which it paid the wages.
ANDREW: Now if the employer does not repay or reimburse the employee the amount of overcollected Additional Medicare Tax before the end of the year in which the wages were paid, the employer should not correct the error via an interest-free adjustment.
In this case, the employer should report the amount of withheld Additional Medicare Tax, all of it, on the employee's Form W-2 so that the employee may obtain credit for Additional Medicare Tax withheld on the employee's individual income tax return.
In other words, if it's past the end of the calendar year, just let the employee reconcile everything on their individual return.
ANDREW: Now for the third scenario. If an employer overwithholds Additional Medicare Tax for an employee's wages, should the employer file a claim for refund for the Additional Medicare Tax?
Now the answer to this is no. An employer should only claim a refund of overpaid Additional Medicare Tax if it did not deduct or withhold the overpaid Additional Medicare Tax from the employee's wages. Rather, the employer should correct the error by making an interest-free adjustment on the appropriate corrective return, for example Form 941-X. So if you've already deducted from the employee's wages, do not file a claim for refund, use the interest-free adjustment process.
ANDREW: Fourth scenario. If an employer underwithholds Additional Medicare Tax and discovers the error in a subsequent year, should the employer correct this error by making an interest-free adjustment?
The answer is no as well. If an employer underwithholds and does not discover the error in the same year wages were paid, the employer should not correct the error by making an interest-free adjustment.
However, to the extent that the employer can show that the employee paid Additional Medicare Tax on the employee's individual income tax return, the underwithheld amount will not be collected from the employer. But, as I mentioned earlier, the employer will remain subject to any applicable penalties.
ANDREW: Finally, in the fifth scenario, if an employer overwithholds Additional Medicare Tax and discovers the error in a subsequent year, should the employer correct this error by making interest-free adjustments?
The answer, as you've probably guessed, is no. If an employer withholds more than the correct amount of Additional Medicare Tax from wages paid to an employee and does not discover the error in the same year the wages were paid, the employer should not correct the error by making an interest-free adjustment.
In this case, the employer should report the amount of withheld Additional Medicare Tax on the employee's Form W-2, so that the employee may obtain credit for Additional Medicare Tax withheld. And that Additional Medicare Tax withholding will be applied against the taxes shown on the employee's individual income tax return.
ANDREW: Okay. So that about does it for our discussion of Additional Medicare Tax. As I mentioned earlier, the tax is in effect for taxable years beginning after December 31, 2012 and taxpayers must comply with the law as of that date. Proposed regulations for Additional Medicare Tax providing for some of the procedures I just described were published in December of 2012. That regulation number is REG-130074-11. Now, these proposed regulations are not effective until final regulations have been published in the federal register. However, with regard to specific matters discussed in the proposed regulations, taxpayers may rely on the proposed regulations for the tax period beginning before the date that the final regulations are published in the federal register. So a lot of the procedures I described now may be relied upon until we publish final regulations.
If any requirements change in the final regulations, taxpayers will only be responsible for complying with the new requirement from the effective date of the final regulation.
Finally, just to let you know, for more information on Additional Medicare Tax, the best place to go is irs.gov. The best way to search is just type in Additional Medicare Tax in the search box. You will receive a whole bunch of hits and probably the most useful would be a page of questions and answers on Additional Medicare Tax. A lot of the information I just talked about today comes from that page. And that does it for me. I think I'll pass it on to Karen.
Karen Levin: Hi. I'm Karen Levin and I'm also an attorney and chief counsel. I am the contact person for the Notice 2012-9 which is W-2 Reporting of Healthcare Costs. I'm going to speak today about this notice which is the notice that covers the reporting of healthcare coverage.
During my presentation today, I'm going to first give you background information about the notice.
Second, I'm going to speak about exemptions, both permanent and temporary exemptions.
Third, I'm going to speak about which coverages you must report on an employee's W-2.
And fourth, I'm going to speak about whose coverage you must report, and finally, I'm going to speak on how to measure the reportable coverage.
KAREN: So as background, most employers needed to report the aggregate cost of employee's health coverage on the Form W-2 that was provided in January 2013 for the 2012 year.
There was an IRS Notice 2012-9 that was published at the beginning of January 2012 and it specifically explains how to measure and report coverage, what types of coverage are subject to or permanently exempt from reporting on the W-2, and what types of employers and coverages are temporarily exempt from initial reporting.
KAREN: So for starters, if you want to review the notice, and it is 23-pages long, you can go on the IRS website to easily locate it or you can just Google it, and there's only one notice that comes up for Notice 2012-9. I checked right before today's session.
I also want to note that this Notice 2012-9 replaces and expands on an earlier notice, Notice 2011-28 that came out in 2011 concerning the reporting obligation.
This notice includes Qs & As, Questions & Answers, covering which employers must report, what types of coverage they must report, and how the employer should report the coverage. At times, during today's presentation, I'm going to provide you with specific Q&A numbers so if you want to review the actual background material and the actual Q&As after the session, you'll have the Q&A number handy.
KAREN: The general rule is that all employers that sponsor group health plans have to report the cost of group health plan coverage on their employees' Forms W-2 unless they are eligible for an exemption from reporting it.
So, this reporting requirement applies to private employers, to federal, state and local government entities, as well as tax-exempt organizations.
So some of the usual exemptions from complying with different employee benefit rules are not applicable in this context.
Almost every employer is subject to the W-2 reporting requirement. So, the most important message is that this reporting is for the purpose of information for your participants and beneficiaries.
It does not affect the tax treatment of an employee's health coverage.
A lot of people are suspicious that there is some tax treatment implication that we have in mind but it is not true, it is purely for the information of the taxpayer recipient. The purpose is to inform employees of the cost of their health care coverage. Including it on the W-2 in Box 12 does not cause excludable employer-provided health care coverage to become taxable.
KAREN: So, permanent exemptions, who gets them? Good question.
Government entities won't ever have to report plan coverage for plans that are maintained primarily for members of the military and their families and for federally recognized Indian tribal governments. And these are listed in Q&A 3 and 22.
Another entity that is exempt are employers that are subject to the W-2 requirement will not have to report salary reduction elections for many health FSAs, and that's Questions and Answers 12, 16 and 19.
Employers do not have to report the cost of coverage that is not considered employer-sponsored coverage such as insured dental and vision coverage that's provided under a separate policy, certificate or contract.
Long-term care does not have to be included in the W-2 reporting of Box 12 ever.
KAREN: Supplemental insurance, disability income, workers comp, automobile insurance, certain hospital, fixed indemnity and disease, specific insurance, all of these are eligible for a permanent exemption. Temporary exemption is the next category.
The IRS for starters is going to give employers at least six months advance notice of any future changes to the exemptions, but for now we have these temporary exemptions. I'm going to go over who can get these temporary exemptions.
Churches and other employers that do not have to report the cost of self-insured coverage that is not subject to federal continuation requirements including COBRA, ERISA, the public health service act or the FEHD.
KAREN: Employers that are tribally chartered courts have a temporary exemption.
Employers that contribute to a multi-employer plan, which none of the employer on this call are dealing with multi-employer plan issues, but they get a temporary exemption.
Employers furnishing mid-year W-2s upon the request to employees who have terminated before the calendar year ends.
If an employee request a W-2 before you normally are required to distribute them, you do not need to include mid-year on the W-2 the health care cost.
And the big exemption that a lot of employers took advantage of for the 2012 W-2 are employers that filed fewer than 250 Form W-2s in 2011. So I'm going to give you an example to explain this point.
For example, the City of Wilmington, an employer filed fewer than 250 forms W-2 in 2011. So this employer, the city of Wilmington does not have to report the average of cost of coverage on its employee's 2012 Form W-2.
KAREN: Next, I'm going to read a question that was submitted by one of the participants in today's call.
The question is "I would like to confirm that local government employers that are public libraries and that have less than 50 full time employees are exempt from all of the employer requirements under the Affordable Care Act."
To respond to this question for certain employers and with respect to certain types of coverage, the requirement to report the value of coverage will not apply for the calendar year 2012 Forms W-2, that employers were require to provide to employees in January 2013.
And it will not apply in future years until the IRS issues additional guidance.
KAREN: This transition relief applies to, among others, employers filing fewer than 250 Forms W-2 in the previous calendar year.
Therefore an employer such as this public library with fewer than 50 workers to whom it issued Forms W-2, would qualify for the transition relief.
Another category under temporary relief is, employers do not have to report the average cost of HR leave on the W-2. And this is question and answer 18. Employers also do not have to report the cost of dental and vision plans that are accepted benefits for certain HIPPA purposes.
And the way to qualify as a HIPPA accepted benefit means that your benefits are either insured under a separate contract or policy, or they're otherwise not an integral part of the group health plan.
KAREN: Finally, there is temporary relief for certain EAPs, Employee Assistance Plans, certain onsite clinics and certain wellness programs, but we're going to discuss those a little bit later in my presentation.
So the next question that you probably have is what coverage must be reported on the Form W-2?
Unless an exemption applies, you have to report the aggregate cost to the employee's employer-sponsored coverage.
This means most insured and self-insured group health plan coverage needs to be included.
This means that it's calculated either for a single or a family unit, depending on what type of coverage the participant has.
This means that you include both the employer and the employee portion of the cost. And you can look at Qs and As 13 and 14.
KAREN: So I have another question from participant in today's conference call.
"There is some confusion as to the amount that is to be included in Box 12dd on the W-2 form. Which should the box reflect?"
And he gave a choice of three. "[A] the city's cost of the employees' insurance only? [B] the combined total of the city's cost and the employees' cost of the insurance? [C] or the combine total cost of all participants' cost of insurance? That is the city's cost of the employee's insurance, the employees' cost of their insurance and the cost to the employee of the dependents that are in the city's insurance for which the city pays none?"
And the response is the amount to report on the Form W-2 should include both the portion paid by the employer and the portion paid by the employee. So the correct answer is both B and C.
KAREN: There is a chart called Employer-Provided Health Care Coverage Requirements. There's a page with a chart on irs.gov that explains exactly what amounts must be included and what may or may not be included in Box 12 which has also been gone over during today's presentation.
The question on EAPs, wellness programs and onsite clinics. If it's considered a group health plan then you need to report it.
So for example, some EAPs offer services beyond clinician referrals and they are typically considered group health plans. Under the transition relief, if an employer does not charge COBRA-qualified beneficiaries through the coverage under an EAP, a wellness program or an onsite clinic then they do not need to be included in coverage.
But if an employer does charge COBRA-qualified beneficiaries a premium for this coverage, for this coverage under EAP, wellness program or onsite clinic then they are not eligible for the temporary exemption.
KAREN: Health FSA contributions is another big question. As a general rule if it is funded solely by an employee's pretax contribution, no amount has to be reported on the employee's W-2.
But if the employer provides a flex credit then there is a rule you should be familiar with, you need to report the difference between the health FSA and the employee's total salary reduction contributions.
So here's an example, the municipal general hospital sponsors a cafeteria plan and it gives its employees the right to elect a health FSA and other qualified benefits.
This employer gives out a flex credit of $1000.
Connie, an employee, makes a $2000 salary reduction and this includes a $1500 Health FSA contribution.
Because $2000, her total salary reduction, is more than the value of her health FSA contribution of $1500, there is no need to report Connie's health FSA on her W-2, whatsoever.
But if an employer makes a contribution then some or all of it may be reportable.
KAREN: So here is another example, the local prison is sponsoring a cafeteria plan and is offering a match for the employee salary reduction election.
Hope makes a $700 salary reduction to go towards her health FSA and her employer, the prison, matches it.
So she now has a $1,400 dollar election for her health FSA. $700 that she did through salary reduction and $700 that she got from her employer.
But here, her health FSA exceeds her salary reduction election by $700 because she has a $1,400 HSA.
She has a $1,400 HSA contribution but she only has a $700 salary reduction election.
So, in this case, $1,400 minus $700 means that her employer, the prison, needs to report $700 for her health FSA on Box 12 of her Form W-2.
KAREN: Another issue, hospital fixed indemnity and disease-specific insurance that's provided on a pre-tax basis.
Each of these must be included in the aggregate cost of coverage, if the employer provides it on a tax-free basis then it must be included in the aggregate cost of coverage.
If the employer offers it on an after-tax basis then it does not need to be included as long as its insurance does not coordinate it with the group health plan coverage.
For example, a voluntary benefit and you could look at Q&A 37 and 38, if that's something of interest to your plan.
Also, if the employer just provides a tax-free contribution so the employee doesn't pay anything, so it's not being included on a pre-tax basis, for a tax-free contribution you also must include it in the aggregate cost of coverage.
KAREN: So another question, "Can you report exempt benefits? Benefits you're not required to report."
Yes, you can.
Benefits such as HRAs, EAPs, wellness, onsite clinics, as long as it is employer-sponsored coverage and its cost is calculated using an approved method, you can include it on the Form W-2.
So summing up different types of benefit plans, I'm just going to go through a list. But insured medical and prescription drug coverage is reportable. So is self-insured medical or prescription drug coverage with the exception if federal continuation coverage requirements do not apply to the plan. Insured dental and vision coverage is not reportable if it's offered under a separate policy, certificate or contract of insurance.
Self-insured dental and vision coverage? No, it's not reportable unless it's integrated into a group health plan that provides other reportable coverage.
Health FSA contributions? No, if it's made through employee salary reduction elections but yes if there are other types of health FSA contributions. HRA contributions is no, if subject to a temporary exemption. HSA contributions are no. You continue separately reporting HSA contributions in Box 12 using code "W" and that is Q&A 16.
Onsite medical clinics, wellness programs and EAPs? Yes, if a group health plan and the employer charged for continuation coverage of this benefit.
Retiree medical? No, unless the retiree must receive a Form W-2 and that's Q&A 6 and 9.
Long-term care? No.
Archer MSAs? Employers already must separately report MSA contributions in Box 12 using code "W" but there's no additional reporting required under this notice.
Supplemental insurance? No.
Pre-tax hospital indemnity or other fixed indemnity insurance? Yes, but after-tax hospital indemnity or other fixed insurance, no.
KAREN: So now that we've summed that up, the next area that we're going to cover is whose coverage must be reported?
You need to report group health plan coverage for employees, for family members. We're talking about spouses, children, if domestic partners are covered, they all must be reported.
The cost of coverage provided for those who don't qualify for tax-free health coverage.
So for example, if you have older children on your plan or domestic partners who don't qualify for tax-free coverage, you still need to include them in the aggregate reportable cost for group health plan coverage.
No reporting on the W-2 is required for the following groups of people:
For retirees, for COBRA-qualified beneficiaries,
for disabled former employees,
for surviving spouses.
And we have another question from a participant in today's presentation.
KAREN: "We have employees who are retired with a government pension from the Texas Teacher Retirement System. For these retirees' re-hires, we are required to pay the pension back for health insurance costs. We were told we need to report both our payments to the pension, as well as what the employee pays to the pension for health insurance costs on the W-2, even though the employee payment does not ever go through our payroll system at all. Is this correct?"
And our response is that amounts reported on the Form W-2 should include both the portion paid by the employer and the portion paid by the employee.
Therefore, the payment made to the pension plan to reimburse it for health insurance costs and the amount paid by the employee should both be reported.
KAREN: Note: if a former employee has reportable compensation, for example, a severance payment, and had group health plan coverage during the year, then the employer is still subject to the reporting requirement for the employee's Form W-2. And you can look at question and answer 6 for that.
So how is reportable coverage measured? You do have some choices.
You should determine using similar rules to how you calculate COBRA, but you have several alternatives to use. Of course, you're not including the 2% administrative fee. The key is using a consistent method for everyone receiving coverage under the plan.
KAREN: So employers with insured coverage often use the premium charged by the insurer.
Employers with self-insured coverage should rely on actuarial estimates to develop a COBRA premium.
Employers can use a modified COBRA premium method if they contribute to an individual's COBRA coverage or they use a prior year COBRA premium.
So you do have some flexibility but the key is you need to charge the same rate for all covered individuals, regardless of their coverage tier or their different rates based on tier types.
So some employers have the same rate regardless of whether it's individual coverage or family coverage.
If that's your situation, you just need to be consistent with how you report the health care costs on the W-2.
KAREN: You also have some flexibility for the coverage of terminated employees.
For example, if an employee terminates mid-year, the employer can choose whether to report the cost of any COBRA coverage that the employee has.
But the key is that the employer should be consistent for all employees who terminate during the year. And you can look at Question & Answer 6 for some further guidance concerning that question. So I'm going to read you two examples that illustrate this point.
One, an employee, Martha, is an employee of Martha's Junior College and she was an employee as of January 1st. She continued in employment through April 25th.
KAREN: During the entire period and through April 30th, Martha had individual coverage for herself under her group health plan and she had a cost of coverage of $350 per month.
She elected continuation coverage for the six months following the termination of her employment, covering the period from May 1st through October 31st, and she paid $350 per month.
Employer reported $1,400 as the reportable cost under the plan for the calendar year, covering the four months during which she performed services and had coverage as an active employee, and her employer, the Junior College, applies this method consistently for all employees who terminated during the calendar year who had coverage under this group health plan.
Her employer, the Junior College, applied a reasonable method of reporting her costs under the plan.
KAREN: A second example with the same exact facts in the first example, she started working on January 1st and she continued in her employment through April 25th, and she had individual coverage under the plan of $350 per month.
In this case, Martha's College reported $3,500 as their reportable cost under the plan for the calendar year.
She covered both the monthly periods during which Martha performed services and had coverage as an active employee, and the monthly period during which Martha retained continuation coverage under the plan.
Her employer applied this method consistently for every employee that terminated during the calendar year who retained coverage under the group health plan.
Her employer applied a reasonable method of reporting Martha's reportable costs under the plan and reported it accurately.
KAREN: There are also rules included in the W-2 reporting for mid-year coverage and cost changes.
If you have a mid-year coverage or cost change, you need to accurately and consistently report it for all covered individuals under the plan.
So basically, those are the rules that apply to W-2 reporting coverage.
As I said in the beginning of my presentation, Notice 2012-9 includes all of the Qs & As that illustrate the points and requirements of employers.
If anyone has any questions concerning W-2 reporting, I'm actually the contact person, and you can feel free to call to ask any questions at 202-622-6080. And again, my name is Karen Levin. I hope you enjoyed today's presentation, and I'm going to give it back to Tennille.
TENNILLE: Wow! Thank you so much, Andrew and Karen, for such a great presentation. We really, really appreciate it. And I know there was a wealth of information provided today, and at least it was beneficial, I'm sure for most of you on the call.
However, we know that you may have additional questions, and we encourage you to send those additional questions to the following address again email@example.com, with the subject line again, "ACA phone forum".
We thank you so much for joining us today. Again, we thank our presenters. They were excellent presentations and we hope you'll join us again for future phone forums, and we want you all to have a wonderful day. Thank you so much.
MODERATOR: Thank you, Tennille, Karen, and Andrew, and thank you to all of our participants for joining us today. This concludes our phone forum and you may now disconnect.