W-2 Health Care Reporting Made Optional for 2011

On October 12, 2010, the Internal Revenue Service (“IRS”) issued welcome relief from the new Form W-2 reporting requirement regarding the cost of coverage under an employer-sponsored group health plan that is effective next year. Specifically, the IRS issued Notice 2010-69 (http://www.irs.gov/pub/irs-drop/n-2010-69.pdf), which made the reporting optional for 2011 Forms W-2, and indicated that guidance is coming later this year on what should be reported.

W-2 Relief for 2011

Pursuant to Notice 2010-69, the Form W-2 reporting requirement set forth in Code section 6051(a)(14) will not be mandatory for Forms W-2 issued for 2011. The Department of Treasury and IRS determined that this interim relief is appropriate to provide employers with additional time to make necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement. Accordingly, employers will not be treated as failing to meet the requirements of Code section 6051 and, importantly, will also not be subject to any penalties for failure to meet such requirements. (These penalties were just increased effective beginning in 2011.)

The Department of Treasury and IRS also anticipate issuing additional guidance on the Form W-2 reporting requirement set forth in Code section 6051(a)(14) before the end of the year that will hopefully provide needed guidance on the various open issues related to this reporting requirement.  The IRS has also posted a draft Form W-2 for 2011 (http://www.irs.gov/pub/irs-utl/draft_w-2.pdf) on its website that provides that the cost of employer-sponsored health coverage (if provided by the employer) should be reported in Box 12 of the Form W-2 using Code “DD”. This is also a helpful development, since establishing a new box on the form would require additional system changes.