The ACA requires employers that provide health coverage to calculate and report the cost of that coverage on employees’ W-2 forms. The IRS will use this information to track “Cadillac” health plans, which will be subject to a 40 percent excise tax beginning in 2018.
Which employers need to make W-2 reports? Employers that file 250 or more Forms-W2 must report the cost of health coverage they offer to full-time equivalent employees. The requirement was supposed to apply to all employers with 50 or more full-time equivalent employees. However, the IRS delayed this requirement for smaller employers due to the outcry from employers. The requirement will go into effect for employers with 50-250 employees when the IRS issues final regulations. Until then, reporting for these employers remains optional.
Employers must report the value of the following employer-sponsored benefits, whether provided through a fully insured or self-insured plan:
- Major medical coverage
- Amounts received under health reimbursement arrangements (HRAs)
- Employer contributions to a health savings account (HSA) or Archer medical savings account (MSA)
- Employer-provided Medicare Advantage plans
- The value of treatment from on-site medical clinics, except for “de minimis” care
- Limited benefit plans
Employees’ salary reduction contributions to health flexible spending arrangements (FSAs) are exempt, as are stand-alone vision or dental insurance, long-term care insurance, hospital indemnity and cancer or “dread disease” coverage (if the employee pays with after-tax dollars), and accidental death and disability insurance.
Self-insured employers calculate the value of coverage using rules similar to those that apply to calculating COBRA continuation coverage premiums. Employers with insured plans simply report the premium the insurer charges to cover that employee during the reporting period.
Although this information appears on employees’ Forms W-2, these amounts are not taxable income. Employers can use the updated W-2s to reinforce to your employees the value of their health benefits.
Minimum Essential Coverage Reporting
The ACA also requires individuals to prove they have qualifying “minimum essential coverage” beginning in 2014. Individuals who do not have qualifying coverage must pay an “individual shared responsibility payment,” or penalty, with their taxes. To help individuals prove their compliance, health plans and self-insured employers that provide minimum essential coverage must file reports.
The Affordable Care Act’s “employer mandate” requires “large employers” (those with 50 or more full-time equivalent (FTE) employees) to provide minimum essential coverage to all full-time employees or pay a penalty. Coverage must also meet certain affordability standards.
The ACA Health Plan Reporting Forms
In August 2014, the IRS re-released the forms health plans and employers must use to report the minimum essential coverage they offer (or don’t). Form I094-C is a transmittal form. Employers will submit this form to the IRS with information about the employer itself, the coverage it provided and when it provided it. Employers will also list full-time employees and the months during which, if any, they had coverage under an employer-sponsored plan.
Large employers will also have to complete a Form 1095-C for each full-time equivalent employee. Self-insured employers must complete this form for any individual, including part-time employees and employee family members, who enrolled in the self-insured plan. Employers will provide a copy to the IRS and to each applicable employee.
Employees will use Form 1095-C to prove they had qualifying minimum essential coverage and to file an accurate tax return. They can also use it to claim a tax credit for insurance coverage, if eligible.
Employers with 100+ employees will file Forms 1094-C and 1095-C with their 2015 tax return, in early 2016. To be ready, these employers should begin developing systems for tracking and reporting now.
The IRS has recently released draft forms and instructions. You can find copies at the IRS website. However, the IRS cautioned that filers should not use or rely on the draft forms or instructions.