IRS W-2 Reporting Announcements – Employee Benefits

IRS W-2 Reporting Announcements – Employee Benefits

Written by: Mike Duvall, HR and Benefits Advisor

With the passage of ACA (Healthcare Reform), there were a number of individuals who interpreted the law much differently from the way it was written.  The most popular I remember regarded Death Panels, and now, the ever popular Taxation of Employer Sponsored Premium Payments.

Some people thought at first, because of the new requirements, that all employee benefits premiums must be listed on the W-2– but not everything that is listed on the W-2 is taxed (e.g. – FSA contributions, Employee Paid Health Premiums, and 401-k contributions for example- all components of your Employee Benefits Program)  W-2 employee benefits

A number of helpful articles have been released to explain that Employer Premiums will not be taxed under certain limits, but still, the rumor mill and internet activity has raged on to create quite a stir.

Legal Alert: Setting the record straight on the W-2 panic published in September 2010 by Employee Benefit News.

The main reason for W-2 reporting of Employer Premiums was to see what employees would be subject to regarding the Cadillac tax for premiums.

Here are the direct links to the IRS site that explains the delay in W-2 reporting, and that employer contributions, even though listed on the W-2 will not be taxed.

IRS delays implementation in 2011 of W-2 reporting

Link that explains the reporting is NOT Taxable (Page 5 , second paragraph, second column)

Cadillac Tax on Employer Sponsored Premium (High Cost Plan Excise Tax or revenue raising provision of ACA)

A 40% annual tax on employer-sponsored coverage exceeding value of $10,200/single; $27,500/family All employer coverage that exceeds specified values.  This tax  begins January 1,  2018.

“There has long been opposition to extremely generous employer-sponsored insurance for several reasons. Because of the value of employer sponsored insurance is not taxed as income, those with higher salaries receive a larger effective tax break for receiving generous benefits, as their tax rate is higher.” Source: American Action Forum.Org

So, reporting the employer contribution on the W-2 would automate the review of those who the extra 40% tax would be applicable to since the average Premium for family coverage reported in the 2010 Milliman Medical Index Report  was $18,078 ( 7.8% increase from 2009).  The Average Family Premium is well below the $27,500 maximum now, but there is room to argue with the increase in annual premiums hovering around 8%; the Cadillac Tax level will be reached in 7 years.

Then again, by 2018 it’s safe to say there will be a number of revisions made to the ACA.

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FosterThomas is a leading professional services company that provides solutions in the areas of Human Resources Consulting and Outsourcing, HR Staffing, Outsourced Recruiting, Employee Benefits Brokerage, Payroll Implementation and Services, HR for Government Contractors, Business Insurance, HR Compliance and Risk Management. We help organizations by providing solutions designed with a focus on cost containment strategies and increasing HR efficiency. FosterThomas HR Consulting was established in 1993 with offices in Annapolis, Maryland (Corporate), McLean, Virginia and Raleigh, North Carolina. Today, FosterThomas occupies a unique position as a full service provider of HR services.

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