Health Care Reform Alert: How to Report on Upcoming W-2s

by | Oct 27, 2010 | Blog, Healthcare Programs

  • Amy Letke

    Amy Newbanks Letke, SPHR, GPHR, is the Founder of Integrity HR, Inc. Amy provides workplace solutions to improve performance, reduce liability and increase profits. She is passionate about helping other entrepreneurs and business owners achieve success. Contact us for more insights - 502-753-0970 or

The Patient Protection and Affordable Care Act of 2010 has been confusing for most of us since its inception. Not only are there confusing requirements and multiple deadlines, but requirements seem to be a moving target.

Originally, The Patient Protection and Affordable Care Act of 2010 (PPACA) amended the Internal Revenue Code to require, beginning Jan. 1, 2011, that employers report the aggregate cost of “applicable employer-sponsored coverage” on Forms W-2 issued to employees. However, on Oct. 12, 2010, the Internal Revenue Service (IRS) announced that employers will not be required to report the cost of employer-sponsored group health coverage on Forms W-2 issued for 2011.

Notice 2010-69 advises that the Form W-2 reporting requirement is not mandatory for Forms W-2 issued for 2011. The IRS explained that the “Treasury Department and the IRS have determined that this relief is appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.”

It’s a good thing, because many employers and payroll providers alike were wondering how to track and display this information in payroll so that it would appear on the W-2. Also, the IRS continues to stress that the Form W-2 reporting requirement is intended for informational purposes only to provide employees with greater transparency into overall health care costs, and that the amounts reportable are not taxable.

If you do report, what should be included in the reporting? The PPACA requires an employer to report on an employee’s Form W-2 the aggregate cost of “applicable employer-sponsored coverage,” which is generally defined as coverage under any group health plan made available to an employee by an employer.

Applicable employer-sponsored coverage includes the entire cost of the coverage, without regard to whether the employee pays a portion of the coverage.

So, basically, employers will use the actual cost of the benefit as invoiced from their provider.

It does not include:

  • Coverage for long-term care
  • Coverage only for accident, or disability income insurance, or any combination thereof
  • Coverage issued as a supplement to liability insurance
  • Liability insurance, including general liability insurance and automobile liability insurance
  • Workers’ compensation insurance or similar insurance
  • Automobile medical payment insurance
  • Credit-only insurance
  • Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits
  • Coverage for a specified disease or illness, hospital indemnity, or other fixed indemnity insurance, if the coverage is offered as an independent, non-coordinated benefit the payment of which is not excludable from income, and no deduction is allowed
  • Coverage under a separate policy, certificate, or contract of insurance that provides dental or vision benefits

Notice 2010-69 also explains that the Treasury Department and the IRS anticipate issuing guidance further explaining the Form W-2 reporting requirement before the end of 2010.

Note: As an additional reminder, remember that as of January 1, 2011 employees can no longer use FSA and health care reimbursement account funds for any medications without a prescription.

It might be a good time to start reminding employees to have discussion with their doctors regarding the medical necessity forms that can be obtained from their doctors in order to allow these as a reimbursed expense.

If you need assistance with any of the above or preparing for other changes brought on by the current health care reform make sure to Contact Us Now.

Download Our FREE Resources

A list of our useful HR resources