W-2 Health Care Cost Reporting postponed for most small businesses

President Obama’s health care overhaul, the Patient Protection and Affordable Care Act of2010, mandates employers to report the cost of group health plan coverage to their employees annually on their W-2s. As passed into law, reporting was to begin with the 2011 W-2s (to be issued in January, 2012), but the IRS postponed the effective date by one year. Although this cost is included on the W-2 (in Box 12), it is informational only and is not included in taxable income.

On March 25, 2011 the Internal Revenue Service (IRS) published Notice 2011-28. This notice provides interim guidance for large employers on how to report the cost of group health insurance coverage on employees W-2s. Reporting is effective beginning in 2012 when employers must report an employee’s health care costs on the Form W-2. The requirement is voluntary for 2011. 

In Notice 2011-28, large employers are defined as those issuing 250 or more W-2s for calendar year 2011. These large employers are required to begin reporting the cost of group health plan coverage on the 2012 W-2s, which will be distributed in January 2013. Notice 2011-28 also postpones this reporting requirement for smaller employers. Small businesses that will issue fewer than 250 W-2s for 2011 are not required to report the cost of group health plan coverage on the 2012 W-2s that will be distributed in January 2013. This exemption will continue to apply in all years that follow as long as the small business meets the less than 250 W-2 prior-year limits, that is until and unless the IRS issues further guidance.