The Patient Protection and Affordable Care Act (PPACA) requires all companies to report the cost of employer-sponsored health coverage to their employees on IRS Form W-2. But uncertainty remains because regulatory guidance still has not been provided on this new requirement. 

W-2 reporting requirements in PPACA: Uncertainty remains

The Patient Protection and Affordable Care Act (PPACA) requires all companies to report the cost of employer-sponsored health coverage to their employees on IRS Form W-2. But uncertainty remains because regulatory guidance still has not been provided on this new requirement.

In an effort to make the cost of employer-sponsored health coverage more transparent to employees, PPACA requires an employer to disclose the value of the employee's health coverage sponsored by the employer on an employee's W-2 beginning with the 2011 tax year.

"These PPACA reporting requirements begin affecting businesses in the very near future," said Jill Barber, Ceridian compliance manager for HR/Payroll, Regulations. "For the most part, W-2 data for the year 2011 will be issued in January 2012. But there are some instances that require employers to issue W-2 forms to certain employees mid year. It is unclear whether the health care cost reporting requirement will apply to the accelerated W-2 data."

Barber suggested that employers should start tracking and accumulating the value of health care as of January 1, 2011, in order to report correctly for the full calendar year. She stressed that the requirement is for information reporting only; there is no impact to employee earnings or tax withholding. But there are definitely some areas that require clarification in order for employers to comply with the new regulations.

"While the law requires employers to use rules similar to COBRA continuation coverage in determining the value of employer-sponsored health coverage," Barber said, "it is not yet clear whether actual premium costs -- or a more complex actuarial valuation of benefits costs -- will be defined as the valuation method for the W-2 reporting. The U.S. Department of Treasury has been working on new COBRA valuation methodologies to quantify benefit costs for some time now. It's likely that the IRS would prefer to complete the new COBRA guidance as a basis for the PPACA W-2 reporting requirements."

On a recent telephone call with payroll industry leaders, the IRS stated that changes to the 2011 Form W-2 specifications and instructions will be forthcoming in the next month or two. "Although Box 12 is typically used for information reporting, the IRS gave no commitment that it will -- or will not -- be used for reporting health care costs," Barber said.

With so many unanswered questions, much misinformation has been propagated and rumors abound. "For instance," Barber said, "these regulations have no impact to employee tax withholding, despite some information to the contrary. They don't change anything that the employee will pay or do, and there is no dollar or tax impact. This is reporting only."

Timing is tight as employers wait for clarification 
Since the timing is so tight for employers and providers to receive the guidance they need to make the necessary program changes, Ceridian is supporting a proposal for IRS adoption of a "good faith" employer compliance standard for the W-2 reporting requirement in 2011. "After all," Barber said, "we anticipate this change will require both payroll system changes and populating new data fields for all employers. That is something that will take months to fully implement throughout the entire U.S. economy.""

When will regulatory guidance be provided on this new PPACA requirement? "The bottom line is, it could come any time in the next few months," said Barber. "My advice: what you must do right now is wait for guidance, and then be prepared to act quickly. Be assured that Ceridian is on top of this important issue. We are participating in conversations with the IRS in conjunction with the American Payroll Association and the National Payroll Reporting Consortium to point out the impact of this change to employers and to ensure we provide our customers with the most up-to-date information."

In the meantime, trust Ceridian to be fully prepared to support PPACA requirements with effective and compliant payroll solutions. And, as always, Ceridian customers will be alerted immediately when these regulatory requirements are clarified.