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 http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage, 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 (http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage) 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.

Employer Reporting of Employee Health Insurance Costs on W-2s

We continue to receive questions about the status of the ACA provision requiring employers to report on their employees' W-2s the amount that is paid for the employees' health coverage. This provision is still unsettled, and the IRS has instructed that until further notice certain employers with under 250 employees are not required to report the health coverage costs on employee W-2s. Employers can do so, but it is optional.

For more on this IRS statement, go to http://www.irs.gov/uac/Employer-Provided-Health-Coverage-Informational-Reporting-Requirements:-Questions-and-Answers.

For details on what must be reported, see the chart at this link: http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage.

Affordable Care Act Provisions to Review before Year-End

The IRS sent out a notice that it has summarized a number of provisions from the Affordable Care Act on its website. Here are some of the more prominent ones that might apply to religious institutes. These should be reviewed before year-end.

↓This first one could affect our members who have sponsored ministries with highly-paid executives or professionals. The employer is responsible for withholding the additional Medicare tax for employees meeting the $200,000 compensation threshold. The tax applies to fringe benefits as well as cash. It also applies to tips.There is an "Employer and Payroll Service Provider FAQs" in the questions and answers section linked to in the following paragraph.

Additional Medicare Tax (From the IRS Website)

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Treasury Department have issued proposed regulations on the Additional Medicare Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Additional Medicare Tax, see our questions and answers.

↓In 2014 an employer with 50 or more employees will be required to pay for health insurance for all employees. That coverage will be required to provide "minimum value." The comment period mentioned below on the means of determining "minimum value" closed on June 11, 2012.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment. 

↓The IRS invited comments earlier this year on the means by which employers will be required to report on certain information, namely the type and value of the health insurance coverage that they provide. The comment period for both of the notices cited below ended on June 11, 2012

Information Reporting on Health Insurance Coverage

On April 26, 2012, the Department of the Treasury and IRS issued Notices 2012-32 and 2012-33, which invited comments to help inform the development of guidance on annual information reporting related to health insurance coverage. The information reporting is to be provided by health insurance issuers, certain employers that sponsor self-insured plans, government agencies and certain other parties that provide health insurance coverage.

↓The IRS reminds small employers that they may be eligible for the Small Business Health Care Tax Credit (SBHCTC) if they have below a certain number of employees and the average salary is below a threshold amount. Details are available on the IRS website. A number of RCRI members have taken advantage of this refundable credit. 

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers and our news release.

↓Employers who provide health insurance to employees when the employee wants to include a child up to age 27 may want to review the next provision. Employers or the insurance provider can increase the premium, but the employer needs to make sure the extra cost is tax-free to the employee.   

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.

↓Employers will soon have to report on their employees' Forms W-2 the value of health insurance that they pay for their employees. However, the transitional relief that was granted to employers with fewer than 250 employees continues to be in place. That means that if a religious institute employees fewer than 250 people, it does NOT have to report in Box 12 the cost of insurance coverage that it pays for employees. This continues through 2012 (meaning it applies to the forms that the employer files in January 2013). Remember that the members of a religious institute are NOT employees, and therefore they should not be counted when determining the total number of employees. The total number of Forms W-2 might exceed 250 when you combine the employees and the members (for reporting FICA wages). But only the number of actual employees should be considered when determining if the reporting requirement applies for 2012.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.


↓Conclusion
There are a number of other provisions included in the summary of ACA provisions. Please visit the IRS website (http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions) to see if any others apply to your religious institute. See also "Retirement News for Employers" at http://www.irs.gov/Retirement-Plans/Retirement-News-for-Employers.