GJ Stillson MacDonnell

Shareholder

Littler

Mendelson, San Francisco

PANELISTPANELISTPANELISTPANELIST::::

Stephen Tackney, Special Counsel to Division CounselStephen Tackney, Special Counsel to Division CounselStephen Tackney, Special Counsel to Division CounselStephen Tackney, Special Counsel to Division Counsel

Office of Chief CounselOffice of Chief CounselOffice of Chief CounselOffice of Chief Counsel

Internal Revenue ServiceInternal Revenue ServiceInternal Revenue ServiceInternal Revenue Service

Washington, DCWashington, DCWashington, DCWashington, DC

Stephen.B.Tackney@IRScounsel.treas.govStephen.B.Tackney@IRScounsel.treas.govStephen.B.Tackney@IRScounsel.treas.govStephen.B.Tackney@IRScounsel.treas.gov

MODERATOR AND POWERPOINT DEVELOPERMODERATOR AND POWERPOINT DEVELOPERMODERATOR AND POWERPOINT DEVELOPERMODERATOR AND POWERPOINT DEVELOPER::::

GJ Stillson MacDonnell, ShareholderGJ Stillson MacDonnell, ShareholderGJ Stillson MacDonnell, ShareholderGJ Stillson MacDonnell, Shareholder

Littler Mendelson, P.C.Littler Mendelson, P.C.Littler Mendelson, P.C.Littler Mendelson, P.C.

San Francisco, California San Francisco, California San Francisco, California San Francisco, California

gjmacdonnell@littler.comgjmacdonnell@littler.comgjmacdonnell@littler.comgjmacdonnell@littler.com

AFFORDABLE CARE ACT W-2 AGGREGATE

COST REPORTING COMPLIANCE –

PREPARING FOR 2012 AND BEYOND

W-2 Informational Reporting

Obligations Under IRC § 6051(a)(14)

� Patient Protection and Affordable Care Act (PL 111 – 148) §9002(a) amended

IRC§6051(a) to add subsection (14) and 6 lines of text to create considerable

W-2 reporting obligations.

� Concept: provide useful & comparable consumer information, via the annual

W-2 form, that will provide employees cost information regarding certain

employer sponsored group health coverage.

� Help employees understand cost of such coverage.

� Imposes on the employer the obligation to report cost of such group health

coverage.

� Reporting is informational only.

� In sum, W-2 must include the “aggregate cost” of certain “employer-

sponsored coverage” or “Reportable Coverage”

Phased in Reporting

� Calendar year 2011 – reporting was

optional only

� Calendar year 2012 – include

on 2012 W-2, only if employer

issues 250 or more IRS W-2 forms

(don’t count K-1s) in 2011

� Not an end of year employee count

� Counting total W-2 issued even if an employee was not eligible for

or participated in a covered group health plan

� Calendar year 2013 – reporting requirements not set, but under 250

exclusion extends for at least 6 months after further guidance.

What is Reportable Coverage?

� Coverage is any group health plan made available to

employees that is excludable from income tax under IRC 106.

� Includes plans maintained or contributed to by an employer

providing health care to employees, former employees and

eligible family members.

� Pending further regulations, a group health plan can be

identified using plans covered, by type,

under COBRA regulations (Treas. Reg.

54.4980B, Q/A 1).

� Employer does not have to pay any part

of coverage, to have plan included.

� Such plans can be insured or self-funded.

Examples of

Reportable Coverage

� Group medical coverage

� Dental and/or vision plans integrated in group medical plan rather than stand-

alone plans

� Employer contributions (i.e. flex-credits) to FSA but not when solely pre-tax

employee funded contributions

� Disease specific coverage – sometimes

� On site medical clinics (if providing more that de

minimis care) and subject to separate COBRA premium

(optional)

� Hospital or fixed indemnity, paid on pre-tax basis

� EAP, if subject to separate COBRA premium

(optional)

� Medicare supplemental policies

� Health savings accounts (IRC §223(d))

� Flexible Benefits Plans to the extent solely funded by salary reduction (IRC

§§106(c)(2) and 125)

� Long-term care plans

� Health reimbursement (HRA) unless employer elects

to report coverage

� Wellness programs – sometimes?

� Archer MSA (IRC §220(d))

� Self-insured church plans

� Multi-employer plans (CBA plans)

� Employee paid hospital or fixed indemnity insurance, paid on an after-tax basis

� Government plans covering military and their families

� Plans of federally recognized Indian Tribal governments

Examples of Plans Excluded from

Employer-Sponsored Plans

� Identify “reportable coverage” (employer-sponsored) plans subject to law.

� Determine “aggregate cost” of such employer-sponsored coverage(s) on a

calendar year basis.

� Report coverage on W-2, box 12 and code “DD” cost of such coverage(s)

What Must an Employer Do?

� If employee terminated

before January 2 of the year

W-2 is issued in and requested

W-2 before then, no box 12

code DD reporting obligation

need be provided to that

employee.

How to Determine “Aggregate

Costs”

� Requires “valuing” the “premium” cost (after and pre-tax) of

covered plans.

� Include both employer and employee paid costs.

� Include coverage cost for employee and family members and

imputed income, such as in the case of non-dependent domestic

partner coverage.

� Interim guidance allows for the use of COBRA premium

calculation methodologies – exclusive of 2% administrative fee,

when calculating such costs.

� Since reporting obligations include partial year coverage or in

year changes in premiums, calculation of calendar month

premiums is recommended.

Premium Alternative Methodologies

� Employer can use different methods for different plans

� As to calculation for any particular plan, employer must use

same calculation method for all employees

� Three methods that can be used:

– COBRA applicable premium method

– Premium charged method

– Modified COBRA premium method

Special Employer Issues –

Who Issues W-2?

� If employee works for multiple related companies in same year with one

company acting as “common paymaster” under IRC, then only one W-2, so all

covered employer-sponsored coverage reported on the W-2.

� If no “common paymaster” but concurrent employment, can aggregate or

report separately. Can result in need to divide coverage by employer, when

reporting.

� If employee has multiple unrelated employers in a year, each W-2 will include

the covered coverage cost associated with each employer.

� If an employer is a successor employer under Rev. Proc. 2004-53, then last

employer should aggregate reportable costs otherwise both report separately.

� Cost of coverage for employees covered by multi-employers (i.e. union) plans

are not reportable by employer, under current regulations.

� Highly compensated employees receiving taxable excess reimbursements -such

reimbursements are excluded from aggregate reportable costs.

Penalties for Non-compliance

� Penalties are “information return” penalties

IRC §6721

� Failure to file correct information by the due

date penalties

� If late: civil penalties per form range from $30

to $100 per form

� Intentional disregard with respect to either

filing or correct information, at least $250 per

form with no cap

� Can be penalized for failure to correct W-2

statement

Preparing for 2012 Reporting

Checklist

�For 2012 reporting, employer should determine

estimated number of W-2 issued for 2011, if 250 or

more, continue to next steps for 2012, if not, defer

for 2013

�Employer needs to identify “employer-sponsored

coverage”

�Review current COBRA calculation methods used

and determine what method employer can/should

use for 2012 reporting purposes

�If new or different employer-sponsored coverage

is anticipated for 2012, add to listcontinued

Preparing for 2012 Reporting

� Develop method for maintaining or

cumulative basis cost associated with each

plan and coverage option

� Create a payroll-related “association” with

individual employees that can provide for

automatic updating as employee coverage

changes

� Coordinate with payroll service for the

inclusion of aggregate costs on 2012 (as

applicable) or 2013 W-2 forms

� Review and update cost information

regularly to correspond with changes in plan

costs and premium and coverage elections

IRS Guidance

Interim IRS Guidance

IR-2011-31 (3/29/11) – voluntary reporting for 2011

IRS Notice 2011 – 28 – interim guidance in Q/A format

IRS Notice 2011 – 69 – model W-2 and provides for no

penalties for failure to file for 2011

IRS Notice 2012 – 9 – clarifications and prospective

guidance on reporting requirements and modifications

Questions and Answers