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Form W-2 reporting requirement extended for employer-sponsored group health plans.

In Notice 2010-69, the IRS announced that employers will not be required to report the cost of employer-sponsored coverage on Forms W-2, Wage and Tax Statement, issued for 2011, due to the difficulty in preparing payroll systems for the requirement. However, employers have the option to report such costs in 2011. In the draft 2011 Form W-2, also just released, the IRS has designated code DD for reporting the health coverage cost information in box 12. Notice 2010-69 states that the IRS will issue regulations explaining the reporting requirement later this year.

Background

The Patient Protection and Affordable Care Act, P.L. 111-148 (PPACA), signed into law by President Barack Obama on March 23, 2010, requires employers to report on Form W-2 the value of the health insurance they sponsor for their employees, effective for tax years beginning on or after January 1, 2011. If employees enroll in employer-sponsored health insurance coverage under multiple plans, employers are required to report the aggregate value of all health coverage (excluding the value of a health flexible spending arrangement). For example, if an employee enrolls in employer-sponsored health insurance coverage under a major medical plan, a dental plan, and a vision plan, the employer reports the total value of the employee's coverage under all the plans.

Notice 2010-69

Notice 2010-69 delays the effective date for the requirement to report the cost of employer-sponsored group health plans on Forms W-2. Forms W-2 issued for 2011 are not required to include the health coverage information. Accordingly, employers will not be subject to any penalties for failing to meet the requirements of Sec. 6051 for not including the aggregate cost of employer-sponsored coverage on the 2011 Form W-2.

Implications

The delay in enforcing the new reporting requirements gives employers, software providers, and third-party service providers adequate time to plan and implement this new Form W-2 reporting requirement, particularly in light of the fact that essential IRS guidance was not available until late 2010.

Beyond the system problems, many questions have arisen as to what values should be specified on the W-2 and how employers should handle situations in which the information they have is the amount they contribute to a plan, such as a multiemployer health plan, but not the value of the benefit. The delay gives the IRS and Treasury time to issue proposed regulations and to receive and consider comments on these difficult issues. The PPACA ties the determination of the aggregate cost of employer-sponsored coverage to the rules for calculating the applicable premiums for an employee for COBRA continuation coverage, including the special rule for self-insured plans. However, even before the PPACA was passed. Treasury recognized that existing guidance on calculating the cost of COBRA coverage was inadequate, and it was working on a regulation to provide more detail. That regulation will no doubt serve as the basis for the W-2 reporting.

W-2 reporting at this point is strictly informational. The reporting requirement was included in the PPACA so employees could begin to understand the tax-free value of their health plans. It has no tax application and will not until 2018, when the tax on "Cadillac" plans comes into effect. That provision will impose an excise tax on insurers if the aggregate value of employer-sponsored health insurance coverage for an employee exceeds a threshold amount.

From Thomas H. Meyerer, J.D., and Elizabeth Buchbinder, J.D., Washington, DC

Prop. Regs. Would Eliminate Paper Coupons for Federal Tax Deposits

The IRS has issued proposed regulations (REG 153340-09) that, effective in 2011, would eliminate the option of making federal tax deposits by paper coupon. Going forward, taxpayers must submit all federal tax deposits using the Electronic Federal Tax Payment System (EFTPS).

Under the current regulations, organizations whose aggregate annual federal tax deposits exceed $200,000 generally must use the EFTPS. Organizations not required to use the EFTPS may present a check and a paper federal deposit coupon to a bank teller at one of approximately 8,000 financial institutions authorized as a government depositary or to a financial agent. However, beginning in 2011, Financial Management Services, a bureau of the Department of Treasury, is eliminating the system that enables the processing of federal deposit coupons.

The proposed regulations do not change the existing rules for determining a depositor's status as a monthly or semi-weekly depositor for employment taxes. Nor do the proposed regulations change existing rules regarding whether organizations can remit taxes with a return in lieu of making a federal tax deposit if their liability falls below a particular threshold (e.g., $2,500 for a return period for employment taxes). However, such organizations may voluntarily make deposits by EFTPS.

According to the IRS, taxpayer use of the EFTPS has substantial benefits. EFTPS users can make tax payments 24 hours a day, 365 days a year, online or by telephone. Taxpayers can schedule payments up to 120 days in advance using the EFTPS, and the system significantly reduces payment-related errors that could result in a penalty.

Implications

The proposed IRS regulations will affect employers that currently use the paper coupon deposit system for some or all of their federal tax deposits. Taxpayers will be required to make federal tax deposits related to the following taxes, among others, using the EFTPS:

* Corporate income and corporate estimated taxes;

* Unrelated business taxes under Sec. 511;

* Private foundation excise taxes under Sec. 4940;

* Taxes withheld on nonresident aliens and foreign corporations;

* Estimated taxes on certain trusts;

* FICA taxes and withheld income taxes; and

* Nonpayroll taxes, including backup withholding.

Organizations that currently make federal tax deposits using paper coupons will need to register to remit their tax payments using the EFTPS. For more information related to the new system, please see the following resources:

* IRS Publication 4132, EFTPS Online Factsheet (2007), which explains the process of enrolling and paying via the internet.

* IRS Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals (2008).

* IRS Publication 4169, Tax Professional Guide to the Electronic Federal Tax Payment System (2007).

* IRS Publication 4320, EFTPS Tool Kit (2007), which contains descriptions of EFTPS educational materials (most of which can he downloaded as PDF files) and their intended target audiences and is designed for use by tax professionals and financial institutions to help educate their clients about the benefits of EFTPS.

* Publication 4275, EFTPS Express Enrollment for New Businesses (2007).

* Electronic Payment Options Home Page (www.irs.gov/efile/article/0,,id=97400,00.html).

From Howard A. Levenson, CPA, J.D., L.E.M., Washington, DC
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Author:Dell, Michael
Publication:The Tax Adviser
Date:Jan 1, 2011
Words:1088
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