The Patient Protection and Affordable Care Act ("PPACA”) requires that employers report the aggregate cost of applicable employer-sponsored health coverage on their employees’ W-2 forms for 2012. The IRS has issued their latest guidance on the provision, in the form of Notice 2012-9 (the "Notice”) available at http://www.irs.gov/pub/irs-drop/n-12-09.pdf, (also attached). This amends and restates their previously issued guidance. It also provides detailed information in the form of questions and answers to assist employers in meeting their requirements under this new legislation. An employer is only required to report the information for those individuals for whom they are otherwise required to provide a W-2 form.

In general, all employers providing applicable employer-sponsored health coverage must comply. There are limited exceptions. Employers issuing fewer than 250 W-2 forms in 2011 are exempt from the requirement. Indian tribal governments that are federally recognized are also exempt, as well as corporations owned by Indian tribal governments.

The term "applicable employer-sponsored coverage” means:

• coverage under a group health plan made available to the employee by an employer which is excludable from the employee’s gross income under section 106; or
• coverage which would be so excludable if it were employer-provided coverage (within the meaning of section 106). See IRC 4980I(d)(1)(A).

The Notice provides clarification on which types of coverage will be affected by the W-2 requirement.

• Coverage under vision or dental plans that are considered excepted benefits do not have to be reported.
• The cost of employee wellness programs or on-site medical clinics are not required to be reported if the employer does not charge a premium for the cost of this coverage to COBRA beneficiaries.
• The reporting requirement also excludes Archer MSAs, Health Savings Accounts, and Health Reimbursement Arrangements, as well as Health Flexible Spending Accounts ("FSA”) that are funded solely through employee salary reduction elections.
• If the only applicable employer-sponsored coverage provided to an employee is provided under a multiemployer plan, the employer is not required to report any amount on the W-2 for that employee.
• Hospital indemnity plans, fixed indemnity insurance, and specific disease coverage is generally exempt, unless the cost is paid for on a pre-tax basis under a cafeteria plan or with employer contributions that are excludable from income.

An employer may include the cost of certain exempt coverages if they wish, as long as the coverage is applicable employer-sponsored coverage and the employer complies with the general rules for determining the cost of coverage.

The amount to be reported must include the total cost of all applicable coverages provided to the employee for the year, and must take into account changes in coverage by that employee (from single to family coverage, for example). The reportable cost will generally include both the cost of coverage paid by the employer and the portion paid by the employee. The method used to calculate the reportable cost will be similar to the method used by the employer to calculate COBRA premiums. The Notice includes information on the various acceptable calculation methods, and generally provides that employers must use a reasonable method and apply it consistently.

Employers will need to determine which of their plan offerings will be affected by the W-2 reporting requirement, and which calculation methods will best suit their particular needs.