Has anyone reviewed the 2012 rules for IRS Form W-2? The instructions for Box 12 include details about using code DD to identify the Cost of Employer-Sponsored Health Coverage. While these amounts are not presently taxed, they must be revealed in tax year 2012: that will have implications. Naturally, in the current economic climate, people suspect that once the amounts are shown, there will be a temptation to tax those currently untaxed “income” elements. Even if the dollars are not immediately taxed at the Federal, State, county or municipal levels, the very fact of disclosure will create havoc with payroll communications.
Unions can be expected to use the figures to organize laborers, claiming that they can negotiate higher wages and benefits. At non-union enterprises, individual employees will argue that they prefer the cash to the coverage. It’s my money and I want it right now! Or they may bicker over the cost of benefits they don’t use or don’t want. I can hear them now: Why should a single man subsidize maternity benefits? But refusing to disclose the figures or reporting them improperly is not an option. Penalties for violating the new W-2 reporting rules can be as high as $1,500,000, although the maximum is limited to merely half a million dollars for small businesses. Deliberate filing errors may incur unlimited costs.
The rules are complex and quite detailed, including complicated provisions for such items as adoption benefits.
Those who carefully follow government regulations will realize that penalties up to $3,000 per person will be levied on employers who grant health care benefit packages where the employee cost for minimum individual coverage exceeds 9.5% of the employee’s household income. The Affordable Care Act says that companies must collect details about “household income” and analyze it in terms of their employee’s share of an individual coverage premium cost, even if the worker actually has family coverage. Employers would be required to intrude into the privacy of their people, polling workers for the incomes of every household wage earner, in order to compute the 9.5% break point that will vary for each household. It is unclear how that will be done. It is tough enough to collect such information in the US Census, which is completely confidential; company surveys could be inaccurate, and the consequences of error are unknown.
The penalties that start in 2014 will greatly complicate matters for firms that share premium costs with their workers. Under the PPACA law, employers with at least 50 employees must offer affordable health coverage or pay penalties. A plan is not considered affordable if the employee's share of the premium for individual coverage exceeds 9.5% of their household income. If the majority of an enterprise’s employees are low-wage workers, there will be pressure to shift more overall premium costs to higher income employees so households with little income can stay under the 9.5% penalty trigger point. As covered elsewhere, this could mean someone paying the full premium must earn a six-figure income before the average health benefit cost will not trigger a penalty, the company must pick up more of the premium than before, or the employer must reduce coverages to stay within the permitted cost window. These rules may change, because IRS considered the household income comparison feature unworkable and prefers to apply the affordability test to individual W-2 wages.
If employees choose to buy subsidized coverage on their state health insurance exchange, the employer will be penalized: it will cost $3,000 for each employee who chooses the exchange and gets a premium tax credit. Penalizing the company because an employee rejects the company’s health plan and opts to accept a public Exchange plan means the enterprise pays for that individual’s health care, no matter what.
In addition, it appears that even if an employer makes good-faith efforts to provide affordable health care benefits, such an employee free choice could expose the firm to massive penalties. If any employee receives a premium tax credit or cost sharing subsidy in the state health insurance Exchange, the hapless employer will be subject to penalties of $2,000 per employee minus 30 employees each year!
Much care must be taken to comply with these rules. A tremendous amount of clear and careful communication will also be necessary to assure that American enterprises can survive and thrive under these requirements.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
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