The Patient Protection and Affordable Care Act (PPACA) requires employers to report the value of employer-sponsored group health insurance on an employee’s annual W2 form.  The amount to be reported in box 12 is considered non-taxable, at least for the time-being.

The law originally required employers to report this information beginning with the tax year 2011, but the IRS has postponedimplementation.  Now, employers that file more than 250 W2 forms, measured by the preceding calendar year, are required to report the health cost beginning with tax year 2012 (reportable January 2013).  Employers that file fewer than 250 W2 forms are required to report the health cost beginning with tax year 2013 (reportable January 2014).

In calculating the total reportable cost, the employer will combine the portions of the annual premium paid by the employer and the employee.  The annual cost of dental or vision coverage is excluded unless such coverage is integrated with the health plan.  Costs associated with contributions to a health savings account (HSA), Archer medical savings account (MSA), or flexible spending account (FSA), are also excluded from the total.

While postponing this reporting requirement gives employers some breathing room, the beginning of tax year 2012 is just around the corner.  Larger employers must have a system in place to begin tracking and recording employee health plan costs by January.  Smaller employers have an additional year.   Time is short.  Are you prepared?

See IRS Notice 2011-28 Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage for more detail.