Important Tax Reporting Rule Put on Hold

The Patient Protection and Affordable Care Act of 2010 (“Obamacare”) had required employers of any size to begin reporting health coverage for their employees for 2011 on W-2 forms due in 2012. Reporting had been mandated, whether employers, employees, or a combination of both paid for the coverage.

Now, the IRS has said that reporting for 2011 will be voluntary, with mandatory coverage beginning for 2012; additional IRS guidance about reporting is expected before the end of this year.  A draft of the W-2 form for 2011 has been released.

What does reporting mean?
This reporting does not change the current tax treatment of employer-sponsored health coverage. Premiums paid by the employer are deductible by the company; premiums paid by employees may be deductible if they itemize their personal deductions (with special rule for more-than-2% S corporation owners).

The law does not state any reason why employers are required to supply this information on W-2 forms since it does not impact taxation. Presumably it is to help implement the “play or pay” rules that take effect under Obamacare in 2014. At that time employers with more than 50 employees must offer “minimum essential coverage” for full-time employees or pay a penalty. Individuals (other than those who are exempt) must be covered by health insurance or pay a penalty. This reporting will facilitate implementation of the penalties at that time.

No reporting may be necessary if Obamacare is repealed or declared unconstitutional. A federal judge in Virginia has said he may rule on the question of constitutionality before the end of the year. Previously, a federal judge in Florida refused to dismiss the case brought by officials from 20 states who maintain that the law is unconstitutional. A federal judge in Michigan, however, has dismissed a similar claim. Stay tuned!

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