The Changing Landscape of Income Reporting

5/27/2010

By Mark Corey, CPA

The passage of the Patient Protection and Affordable Care Act (Health Care Act) and the reconciliation act that followed has significantly changed how employers are required to report income. As previously discussed in a recent article, the system to report 1099-MISC income was expanded exponentially. This article discusses changes to W-2 reporting as they relate to employer health care expenses.

The Health Care Act has brought changes to a common transaction in most businesses in the United States, namely, health care coverage as a benefit for employees paid for fully or in part by their employers. Under prior law, employer-sponsored health insurance payments were not required to be reported to the employee or the federal government on the W-2 form. Now, under §6051, employers are required to report the value of employer sponsored health coverage, including the value of health, dental and vision coverage on an employee’s W-2.

In order to report the correct amount on the employee’s W-2, the employer calculates the premium for the year under the COBRA continuation coverage rules under §4980B(f)(4) and accompanying Treasury Regulations. If the plan provides for the same COBRA coverage premium for both individual and family coverage, the plan would be required to calculate separate individual and family premiums for this purpose.

The purpose of this change to the reporting requirements for W-2s is unclear; however, the provision was included with a group of “Revenue Provisions” in the Health Care Act. According to the White House’s web site (www.whitehouse.gov), this provision “…will improve enforcement and close loopholes in the tax code” by “expanding corporate information reporting requirements.” It appears that this provision is expected to provide the government with increased revenue through the use of information gathering and IRS enforcement actions initiated through compliance audits using this newly disclosed health insurance information.

The provision is effective for taxable years beginning after Dec 31, 2010.