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W-2 Reporting of Health Insurance Coverage is Now Optional for 2011

The IRS has recently announced that employers won’t have to report the aggregate cost of employer-sponsored group health plan coverage on Forms W-2 issued for 2011. The Reporting for 2011 will be optional, and employers taking advantage of the reprieve will not be treated as having failed to meet the wage and tax statement reporting requirements or be subject to any penalties. IRS anticipates issuing guidance on this reporting requirement before the end of this year.

The is a welcome change to many businesses since the recently enacted Patient Protection and Affordable Care Act of 2010 put into law that the aggregate cost of employer-sponsored health insurance coverage must be reported on Form W-2 for tax years beginning on or after January 1, 2011.

The IRS is providing this interim relief to provide employers with the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement.  In addition, the IRS has issued a draft Form W-2 for 2011.  The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. IRS will be publishing guidance on the new requirement later this year.

The IRS stresses that the amounts reportable are not taxable, and that the new reporting requirement is intended to be informational only and to provide employees with greater transparency into overall health care costs.

By Jeremy Smith, CPA