Payroll & the Affordable Care Act Explained

The healthcare law, known as the Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act was signed in to law on March 30, 2010.  There has been much debate about the reach of the new health care law but equally important are the changes to payroll tax laws, which play a significant part in W-2 reporting.


PPACA requires employers to report the cost of coverage under an employer-sponsored group health plan.


More specifically according to IRS, employers must report the total cost of all “applicable employer-sponsored coverage” provided to an employee. According to the IRS, applicable employer-sponsored coverage “is coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee.”


Employers must report on an employee’s Form W-2 for the year 2012, in Box 12, Code DD, the cost of major medical insurance, on-site clinics, wellness programs and executive reimbursement plans.


Excluded from the new reporting requirement are contributions to HSAs, employee contributions to FSAs and the costs for items like Long Term Care insurance and stand-alone dental and vision coverage.


The IRS emphasizes that what must be reported includes both employer and employee contributions, including for example, employer and employee portions of major medical insurance premiums.


The IRS has an online Q&A document which explains which employers are not required to participate in the W-2 reporting though transition relief.


According to the IRS document employers filing fewer than 250 Form W-2 for the previous calendar year are currently exempt from the requirement.  This may change and employers will receive a 6 month notice to the change.


Many employers also have questions concerning reporting: By reporting the employer and employee amounts on the W-2’s will that then become a taxable benefit?


Currently there is nothing in the requirement that will cause excludable employer-provided health coverage to become taxable.  The purpose of the reporting requirement is to provide employees useful and comparable information on the cost of their health care coverage.

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