Michael A. Kadlec and
Joseph F. Murphy
On January 3, 2012, the Internal Revenue Service issued Notice 2012-9 (available at http://www.irs.gov/pub/irs-drop/n-12-09.pdf),
which restates and clarifies previously issued guidance on the
requirement under the Patient Protection and Affordable Care Act of 2010
(the Affordable Care Act) to report the cost of employer-sponsored
health coverage on employees' annual Forms W-2 (using box 12, code DD).
Notice 2012-9 supersedes the prior guidance issued under Notice 2011-28
and clarifies various aspects of the reporting requirement.
Summary of Reporting Requirements
The Affordable Care Act added Section 6051(a)(14) to the Internal
Revenue Code (the Code), and generally requires annual reporting to
employees on Form W-2 of the aggregate cost of coverage under all
applicable employer-sponsored group health plans that is excludable from
the employees' income under Section 106 of the Code (or would be
excludable if it were employer-provided coverage under Code Section
106). The reporting requirement is informational only and will not cause
otherwise excludable employer-provided health coverage to become
taxable. Applicable-employer sponsored coverage includes the following
group health plans:
For this purpose, applicable-employer sponsored coverage does not include:
The cost that must be reported is the total cost of coverage under
all applicable employer-sponsored plans. Aggregate cost includes both
amounts paid by the employer and the employee, regardless of whether
these amounts are paid through pre-tax or post-tax contributions.
There are three methods by which an employer may calculate the cost
of coverage for the required Form W-2 reporting. An employer may use (i)
the COBRA applicable premium method, (ii) the premium charged method,
or (iii) the modified COBRA premium method. Under the COBRA-applicable
premium method, the reportable cost for a period equals the established
COBRA-applicable premium for that coverage for that period, less the 2
percent administrative charge. The premium-charged method may be used to
determine the reportable cost only for an employer's insured group
health plan. The employer must use the premium charged by the insurer
for that employee's coverage. The modified COBRA premium method may be
used when the employer subsidizes the cost of COBRA or when the premiums
charged by the employer in the current period equal the prior year's
Finally, Notice 2012-9 confirms that employers that were required to
file fewer than 250 Forms W-2 in the preceding calendar year are
temporarily excluded from this reporting requirement.
This additional Form W-2 reporting is a requirement beginning with
the 2012 taxable year (the 2012 Forms W-2 must be distributed by the end
of January 2013). Thus, employers must determine which of their benefit
plans would be classified as providing for applicable
employer-sponsored coverage and monitor the cost of that coverage for
2012. Additionally, employers will need to determine which costs may
permissibly be excluded from the calculation of the aggregate cost of
coverage and determine whether their payroll systems will be effective
in capturing the information needed for Form W-2.
For further information, please contact any member of our Employee Benefits Practice Group.
Michael A. Kadlec and Joseph F. Murphy
material in this publication was created as of the date set forth above
and is based on laws, court decisions, administrative rulings and
congressional materials that existed at that time, and should not be
construed as legal advice or legal opinions on specific facts. The
information in this publication is not intended to create, and the
transmission and receipt of it does not constitute, a lawyer-client
article is republished with permission of Pepper Hamilton LLP. Further
duplication without the permission of Pepper Hamilton LLP is prohibited.
All rights reserved.
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