Employers Welcome IRS Deferral of Health Care Reform’s W-2 Reporting Requirement

The IRS recently issued Notice 2010-69, which defers the Form W-2 reporting requirement found in the Patient Protection and Affordable Care Act (PPACA) by clarifying that such reporting won’t be mandatory for W-2s issued for 2011.

The provision in the PPACA that addresses this W-2 reporting was designed to be effective for taxable years beginning after December 31, 2010.

The IRS also released a 2011 draft Form W-2, which includes codes for employers to use when reporting the cost of employer-sponsored health coverage. According to the draft, employers will use Code DD in Box 12 to report the cost of such coverage. The draft is also careful to stress that the amount reported is for informational purposes only and is not taxable.

We decided to ask several benefits attorneys who contribute to our benefits newsletters — Benefits & Compensation Law Alert and Benefits & Compensation Law for Nonprofits — for their insights on the IRS guidance and what it means to employers. All agreed that the deferral is a good thing.

John Hickman, an Atlanta, Georgia, attorney with Alston & Bird LLP, noted: “The recent IRS deferral of the W-2 reporting obligation is very timely and well received by employers already overwhelmed with new PPACA compliance obligations.”

Ashley Gillihan, another Atlanta, Georgia, attorney with Alston & Bird LLP, also addressed the reprieve given to employers: “The relief is very good news for employers. There are still outstanding issues with respect to the new W-2 reporting requirements, and we were approaching the point after which employers had to make changes to their payroll reporting system in order to comply. This will give the IRS time to clarify outstanding issues and employers time to properly implement the changes.”

Elizabeth Thomas Dold, a Washington, D.C., attorney with Groom Law Group, Chartered, praised the notice: “The relief is an important first step to properly addressing the new reporting requirement, which may first become effective as early as February for terminated participants that request a W-2. It gives employers, the health care industry, and the payroll industry much needed time to begin to work through the numerous issues and make the necessary system changes.”

Dold added: “This relief is particularly important in light of the increased W-2 penalties that become effective next year and as we anxiously await the substantive guidance that the relief indicates is coming later this year. Also, the use of existing Box 12, with new code “DD,” also helps lessen the burden on the needed system changes to support the new reporting. Well done.”

Keep up with the latest in benefits and compensation laws and trends with the Benefits & Compensation Law Alert and Benefits & Compensation Law for Nonprofits.