I had prepped myself for the idea that taxpayers were going to be confused by the new health care reporting requirements ever since last year when the rumormongering about taxing health care benefits in 2011 started. I wasn’t expecting taxpayers to be in a dither quite so far ahead of tax season. Judging from the number of panicky emails in my inbox, I was wrong… But then (*smacks self in the head*), I had forgotten: 2012 is an election year. ‘Tis the season for half-truths and innuendo.
So let me see if I can nip some of this in the bud now.
It is true that for the calendar and tax year 2011 employers must report employer-provided health care benefits for employees. The amount of benefits paid on your behalf will appear on your W-2 in 2012 as a report. It will not affect your taxable income for the calendar and tax year 2011.
The amount will be reported in Box 12, using code DD on your federal form W-2 for 2011 (form will download as pdf). In case you’re wondering where that would be reported on the actual form, take a peek at the compensation side of the form W-2.
Box 12 is on the bottom right-hand side, where you would also see your elective tax deferrals and designated Roth contributions reported.
Why the new reporting requirement? Under the new health care plan, there is a penalty for those taxpayers who are not covered by health insurance. The reporting requirement will eventually assist the IRS in verifying that taxpayers have coverage. Additionally, the new reporting requirements will help identify those taxpayers who will be subjected to the so-called Cadillac tax on high-dollar insurance plans (effective in 2018).
Will this reporting eventually result in taxing health-care benefits? That’s anyone’s guess: we can speculate until the cows come home. But for now, you will not pay tax on the amount of employer-related health care benefits reported in 2011 (some exceptions, such as HRA distributions which are not for reimbursed expenses apply just as they always have). In other words, your health care benefits won’t be taxed any differently for the 2011 tax year as they were for 2010.
If you’re interested in more information about the health care law, you can read my original summary of some of the highlights of the health law as originally passed here. If you want to read the whole kit and caboodle as originally passed – all 906 pages of it – you can download it as a pdf here. The reconciliation act – just 55 pages – can be downloaded as a pdf here.
Author’s update: The IRS is offering transitional relief for employers with respect to reporting requirements. For 2011, reporting health care benefits will not be mandatory nor subject to penalty for employers (see Notice 2010-69, downloadable as a pdf for complete details). Small business employers, defined as those with fewer than 250 employees, have an additional year beyond the 2011 relief. Of course, the IRS has noted that they are not discouraging early compliance and judging by the fairly limited play the transitional relief has been given, I expect to see a good chunk of reporting in 2012.
Hat tip: jim57 (thanks!).
