The health care law passed last March requires reporting to employees the cost of health care insurance provided by their employer. The effective date has been delayed one year.
The cost of group health care is required to be listed on the W-2, which is used to report taxable income and withholding. This will not make the insurance coverage taxable, but is a reporting mechanism to employees so they know how much their insurance is costing.
The initial deadline for reporting the insurance cost was going to be with W-2s issued for 2011. This would obviously cover health insurance provided during all of 2011 and then included on W-2s mailed out in January 2012.
The IRS has announced a one year delay (see notice 2010-69), so the cost of group health insurance will need to be included on W-2s starting with 2012.
Implementation issue: If you use a commercial payroll processor or in-house software, the mechanics of including the information on the W-2 should not be too difficult. The challenge, as I see it, will be for non-profit organizations to accumulate the cost of the group health insurance for each person. The law has some guidelines (specifically pointing toward the cost factor used for COBRA coverage), but later this year IRS regulations will provide the specific instructions. It would be wise to start working through this issue for your ministry and think through how you will accumulate the data and report it to your payroll processor.
Background: Why did the Congress include this provision in the law? I’m not sure, but from what I have read, it seems the Congress wants to help employees understand how much their health care is costing. My impression from talking to people is that most employees have no idea how incredibly expensive health insurance is to their employer. If this helps educate people as to the real cost of insurance, that would be a good thing.