Thursday, January 2, 2014

W-2 Reporting of Health Insurance Costs

We have again been asked about whether religious institutes should or must report the cost of health insurance provided to their members on their W-2s. The requirement to report applies only to employers with regard to their employees. For 2013 the requirement remains optional for employers with fewer than 250 employees. So, the answer to "Must we report for 2013?" is a definite "No" if you file fewer than 250 Forms W-2 for employees. An employer filing fewer than 250 W-2s can, but is not required to, report the insurance costs on their W-2s.

Since members are not employees of their religious institutes, we continue to oppose the reporting of member health care costs on the W-2s that you file reporting the FMV of the care you provide to them (for purposes of being included in the Social Security and Medicare systems). If you do report these costs, you will be using a box on the form that is designed for employers to report information on their employees, in contradiction to the historical stance that members are not employees of their religious institutes. For those institutes which have 50 or more members, you could be binding yourselves to the requirement that you must provide government mandated and approved health coverage to your members.

The IRS explains the reason for including the cost for health insurance on the W-2s of employees at, stating: "The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage." A second IRS web page ( restates this reasoning: "This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage."

The reasons cited by the IRS for including the information on employee Form W-2s--so that employees know how much their health care coverage costs--do not pertain to religious institutes since their members are not employees. Covering the costs of health care is not a perk or benefit of employment for members. Neither civil law nor canon law require religious institutes to provide health insurance to their members. Some members receive coverage through their actual employment outside the institute while others qualify for government-sponsored programs.

Of critical note is the fact that inclusion of health care costs on members' Forms W-2 could indicate your agreement with the assertion that your members are employees. This is contrary to the historical stance that most religious institutes have taken when it comes to the application of federal laws. If you hold your members out as your employees, you could be subject to penalties for failing to provide them with coverage that meets the standards set by the Affordable Care Act. You also could subject yourself to other federal laws that could impose limits on your operations and practices within your sponsored ministries and your religious institute itself.

Lastly, bundling members' Forms W-2 separately from employees' Forms W-2 when submitting them to the IRS can help prevent a misunderstanding. Consider including a note with the members' forms stating that these Forms W-2 are submitted on behalf of members of a religious order who are not its employees, in accord with the election for coverage made under Section 3121 of the Internal Revenue Code.

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