Federal Healthcare Reform legislation (Patient Protection & Affordable Care Act) creates some compliance issues that will begin impacting household employer's payroll recordkeeping in 2012. Effective January 1, 2012, all employers must report the total cost of all “applicable employer-sponsored coverage” provided to an employee for health insurance on the employee's Form W-2. Any non-taxable payments or reimbursements that the household employer makes to their employee(s) for health insurance coverage must be reported. If the employee pays for (funds) any part of his/her health insurance coverage that is partially sponsored by the employer, the total premium cost must be reported.
Historically, household employers have reimbursed or paid for employee health insurance independent of HomeWork Solutions. Unfortunately, we will need to add this layer of activity reporting to our interactions in order to produce compliant Forms W-2 for 2012 and beyond. HomeWork Solutions will query all clients to provide details, if any, of health insurance premiums for inclusion on 2012 Form W-2s when the employer pays some or all of the premium on a pre-tax basis. The IRS emphasizes that both employer and employee contributions must be reported, including for example, employer and employee portions of major medical insurance premiums.
According to IRS guidance, "This reporting to employees is for their information only, to inform them of the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable. Nothing in § 6051(a)(14), this notice, or the additional guidance that is contemplated under § 6051(a)(14), causes or will cause otherwise excludable employer-provided health care coverage to become taxable."
Bottom line, IF the household employer makes ANY tax-free contribution to employee health insurance, then the employer must report the TOTAL insurance premium on the employee's Form W-2 starting with tax year 2012 and forward.