n-11-28.pdf

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Part III – Administrative, Procedural, and Miscellaneous

Interim Guidance on Informational Reporting to Employees of the Cost of Their Group
Health Insurance Coverage

Notice 2011-28

I. PURPOSE

This notice provides interim guidance on informational reporting to employees of the
cost of their employer-sponsored group health plan coverage. This informational
reporting is required under § 6051(a)(14) of the Code, enacted as part of the Affordable
Care Act to provide useful and comparable consumer information to employees on the
cost of their health care coverage. As more fully described below --

• This reporting to employees is for their information only, to inform them of the
cost of their health care coverage, and does not cause excludable employer-
provided health care coverage to become taxable. Nothing in § 6051(a)(14), this
notice, or the additional guidance that is contemplated under § 6051(a)(14),
causes or will cause otherwise excludable employer-provided health care
coverage to become taxable.

• This notice provides interim guidance that generally applies beginning with 2012
Forms W-2 (that is, the forms required for the calendar year 2012 that employers
generally are required to furnish to employees in January 2013 and then file with
the Social Security Administration (SSA)). Employers are not required to report
the cost of health coverage on any forms required to be furnished to employees
prior to January 2013. See Notice 2010-69. However, any employers that
choose to report earlier (on the 2011 Forms W-2 generally furnished to
employees in January 2012) may look to this notice for guidance regarding that
voluntary earlier reporting.

• This notice also provides additional transition relief for certain employers and with
respect to certain types of employer-sponsored coverage. This transition relief
will continue at least through the 2012 Forms W-2 which are required to be
furnished to employees in January 2013. In other words, those employers to
which the additional transition relief applies (which includes smaller employers
that are required to file fewer than 250 2011 Forms W-2) will not be required to
report the cost of health coverage on any forms required to be furnished to
employees prior to January 2014. This transition relief will continue until the
issuance of further guidance.

• Comments are invited on this interim guidance.

Section 6051(a)(14) was added to the Code by § 9002 of the Patient Protection and
Affordable Care Act of 2010 (the Affordable Care Act), Public Law 111-148, enacted
March 23, 2010, and provides that the reporting be made on Form W-2, Wage and Tax
Statement. Notice 2010-69, 2010-44 I.R.B. 567, provides that this reporting will not be
mandatory for 2011 Forms W-2 (that is, the forms required for the calendar year 2011
that employers are generally required to give employees in January 2012 and then file
with the Social Security Administration).

As explained above, this notice provides interim guidance that generally is applicable
beginning with 2012 Forms W-2. In addition, employers may rely on the guidance
provided in this notice if they voluntarily choose to report the cost of coverage on 2011
Forms W-2, even though this reporting is not required for 2011. This interim guidance is
applicable until further guidance is issued. To the extent that future guidance applies
the reporting requirement to additional employers or categories of employers or
additional types of coverage that guidance will apply prospectively only and will not
apply to any calendar year beginning within six months of the date the guidance is
issued. Also as explained above, this notice provides transition relief for certain
employers and with respect to certain types of employer-sponsored coverage. See
section IV of this notice. This transition relief will be extended at least through the 2012
Forms W-2 and the availability of this transition relief through the 2012 Forms W-2 will
not be affected by the issuance of any further guidance. Thus, reporting by these
employers and with respect to these types of coverage will not be required for calendar
year 2012 (that is, on the Forms W-2 that employers generally are required to furnish to
employees in January 2013 and then file with the SSA). For example, as provided in
Q&A-3 of this notice, employers that are required to file fewer than 250 2011 Forms W-2
will not be subject to the reporting requirement for 2012 Forms W-2.

The interim guidance is set forth in section III of this notice. Q&A-1 and Q&A-2 discuss
the general requirements. Q&A-3 identifies the employers subject to the reporting
requirements. Q&A-4 through Q&A-10 provide the methods for reporting the cost of the
coverage on the Form W-2. Q&A-11 through Q&A-15 define certain terms related to the
cost of coverage required to be reported on the Form W-2. Q&A-16 through Q&A-23
set forth the types of coverage the cost of which is required to be included in the amount
reported on the Form W-2. Q&A-24 through Q&A-27 discuss several calculation
methods that may be used to determine the cost of the coverage. Q&A-28 through
Q&A-31 address a number of other issues employers may encounter in determining the
cost of the coverage. Section IV of this notice contains transition relief for certain
employers and with respect to certain types of employer-sponsored coverage. Section
V of this notice contains a request for comments on all aspects of this guidance,
including any areas to be addressed in further guidance or future regulations that will
provide the final rules under § 6051(a)(14).

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II. BACKGROUND

Section 6051(a) provides generally that an employer must provide a written statement
to each employee showing the remuneration paid by such person to such employee
during the calendar year, on or before January 31 of the succeeding year (or, if the
employee terminates employment during the year, within 30 days after the date of
receipt of a written request from such employee submitted before January 2). Form
W-2, Wage and Tax Statement, is the form used to provide an employee this
information.

Section 6051(a)(14) provides generally that the aggregate cost of applicable employer-
sponsored coverage must be included in the information reported on Form W-2,
effective for taxable years beginning on or after January 1, 2011. Section 6051(a)(14),
provides that, for this purpose, the aggregate cost is to be determined under rules
similar to the rules of § 4980B(f)(4), referring to the definition of the “applicable
premium” for purposes of COBRA continuation coverage.

Section 6051(a)(14) does not apply to reporting the amount contributed to any Archer
MSA (as defined in § 220(d)) or to any health savings account (as defined in § 223(d))
of an employee or an employee’s spouse. See § 6051(a)(11) and (a)(12).
Section 6051(a)(14) also does not apply to the amount of any salary reduction
contributions to a flexible spending arrangement (within the meaning of §§ 106(c)(2)
and 125).

Section 6051(a)(14) provides that the aggregate cost of applicable employer-sponsored
coverage (the amount required to be reported on Form W-2) has the same meaning as
in § 4980I(d)(1). Section 4980I(d)(1)(A) provides that the term “applicable employer-
sponsored coverage” means, with respect to any employee, coverage under any group
health plan made available to the employee by an employer which is excludable from
the employee’s gross income under § 106, or would be so excludable if it were
employer-provided coverage (within the meaning of § 106). Section 4980I(f)(4)
provides that, for purposes of § 4980I(d)(1) the term “group health plan” has the same
meaning as under § 5000(b)(1).

Under section 4980I(d)(1)(B), the term “applicable employer-sponsored coverage” does
not include (i) any coverage (whether through insurance or otherwise) described in
§ 9832(c)(1) (other than coverage for on-site medical clinics described in subparagraph
(G) thereof) or for long-term care, or (ii) any coverage under a separate policy,
certificate, or contract of insurance which provides benefits substantially all of which are
for treatment of the mouth (including any organ or structure within the mouth) or for
treatment of the eye, or (iii) any coverage described in § 9832(c)(3) the payment for
which is not excludable from gross income and for which a deduction under § 162(l) is
not allowable.

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The types of coverage described in § 9832(c)(1) (providing that certain “excepted
benefits” are not subject to the requirements of chapter 100 of the Code) that are not
subject to this reporting requirement are as follows:

• Coverage only for accident, or disability income insurance, or any combination
thereof;
• Coverage issued as a supplement to liability insurance;
• Liability insurance, including general liability insurance and automobile liability
insurance;
• Workers’ compensation or similar insurance;
• Automobile medical payment insurance;
• Credit-only insurance;
• Other similar insurance coverage, specified in regulations, under which benefits
for medical care are secondary or incidental to other insurance benefits.

The types of coverage described in § 9832(c)(3) include the following, provided that
such coverage is offered as independent, noncoordinated benefits:
(A) coverage only for a specified disease or illness; and
(B) hospital indemnity or other fixed indemnity insurance.

Section 4980I(d)(1)(C) provides that coverage shall be treated as applicable employer-
sponsored coverage without regard to whether the employer or employee pays for the
coverage.

Section 4980I(d)(1)(E) provides that applicable employer-sponsored coverage shall
include coverage under any group health plan established and maintained primarily for
its civilian employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or instrumentality of any
such government.

Section 4980B(f)(4)(A) provides that the term “applicable premium” means, with respect
to any period of continuation coverage of qualified beneficiaries, the cost to the plan for
such period of the coverage for similarly situated beneficiaries with respect to whom a
qualifying event has not occurred (without regard to whether such cost is paid by the
employer or employee). Section 4980B(f)(4)(B) provides a special rule for self-insured
plans, generally requiring that such plans calculate the applicable premium through one
of two methods – the actuarial method or the past cost method. Section 4980B(f)(4)(C)
provides that the determination of any applicable premium shall be made for a period of
12 months and shall be made before the beginning of such period.

Section 54.4980B-1, Q&A-2 of the Miscellaneous Excise Tax Regulations, provides
that, for purposes of § 4980B, for topics relating to the COBRA continuation coverage
requirements of § 4980B that are not addressed in §§54.4980B-1 through 54.4980B-10
(such as methods for calculating the applicable premium), plans and employers must
operate in good faith compliance with a reasonable interpretation of the statutory
requirements in § 4980B.

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III. INTERIM GUIDANCE

This interim guidance generally is applicable beginning with 2012 Forms W-2 (that is,
the forms required for the calendar year 2012 that employers generally are required to
furnish to employees in January 2013 and then file with the SSA). In addition,
employers may rely on the guidance provided in this notice if they voluntarily choose to
report the cost of coverage on 2011 Forms W-2, even though such reporting is not
required for 2011. This interim guidance is applicable until further guidance is issued. To
the extent that future guidance applies the reporting requirement to additional
employers or categories of employers, additional types of coverage, or otherwise
applies the reporting requirement more expansively, that guidance will apply
prospectively only and will not apply to any calendar year beginning within six months of
the date the guidance is issued. See also Section IV of this notice for certain transition
relief that will be extended at least through the 2012 Forms W-2.

Except as otherwise specified, the interim guidance in this section applies solely for
purposes of § 6051(a)(14) and no inference should be drawn concerning any other
provision of the Code.

In General (Q&A-1 and Q&A-2)

Q-1: What does § 6051(a)(14) require?

A-1: Section 6051(a)(14) generally requires the aggregate cost of applicable employer-
sponsored coverage to be reported on Form W-2.

Q-2: Does the new requirement under § 6051(a)(14) to report the aggregate cost of
employer-sponsored coverage on Form W-2, or compliance with this requirement, have
any impact on whether such coverage is taxable?

A-2: No. The new requirement is informational only. The provisions of § 6051(a)(14)
do not affect whether any particular coverage is excludable from gross income under
§ 106 or any other Code provision, and the reporting of any amount on Form W-2 in
compliance with the requirements of § 6051(a)(14) will not affect the amount includable
in income or the amount reported in any other box on Form W-2. The purpose of the
reporting is to provide useful and comparable consumer information to employees on
the cost of their health care coverage.

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Employers Subject to the Reporting Requirement (Q&A-3)

Q-3: What employers are subject to the reporting requirement under § 6051(a)(14)?

A-3: Except as provided in this Q&A-3, all employers that provide applicable employer-
sponsored coverage (see Q&A-12) during a calendar year are subject to the reporting
requirement under § 6051(a)(14). This includes federal, state and local government
entities, churches and other religious organizations, and employers that are not subject
to the COBRA continuation coverage requirements under § 4980B, to the extent such
employers provide applicable employer-sponsored coverage under a group health plan,
but does not include Federally recognized Indian tribal governments. (Notice 2010-69
provides that reporting by these employers is not mandatory until the 2012 Forms W-2
(that is, the forms required for the calendar year 2012 that employers generally are
required to furnish to employees in January 2013 and then file with the Social Security
Administration (SSA))).

However, in the case of the 2012 Forms W-2 and until the issuance of further guidance,
an employer is not subject to the reporting requirement for any calendar year if the
employer was required to file fewer than 250 Forms W-2 for the preceding calendar
year. (This rule is based upon the rule in § 6011(e) that exempts employers from filing
returns electronically if they file fewer than 250 returns.) Therefore, if an employer files
fewer than 250 2011 Forms W-2 (meaning the Forms W-2 for the 2011 calendar year
that employers generally furnish to employees In January 2012 and then file with SSA),
the employer would not be subject to the reporting requirement for Forms W-2 for the
2012 calendar year (meaning the Forms W-2 for the 2012 calendar year that employers
generally furnish to employees in January, 2013 and then file with SSA). See also
Q&A-21 for an exception to the reporting requirement for coverage under a self-insured
plan that is not subject to any federal continuation coverage requirements, and see also
Q&A-22 for an exception from the reporting requirement for plans maintained primarily
for members of the military, or primarily for members of the military and their families.

Method of Reporting on the Form W-2 (Q&A-4 through Q&A-10)

Q-4: Is the reporting of the aggregate cost of applicable employer-sponsored coverage
required for Forms W-2 issued for the 2010 or 2011 calendar years?

A-4: No. Section 6051(a)(14) does not apply to Forms W-2 for calendar years prior to
2011 and, accordingly, reporting of the aggregate cost of applicable employer-
sponsored coverage is not required for Forms W-2 issued for the 2010 calendar year.
Moreover, Notice 2010-69 provides that reporting will not be mandatory for the 2011
calendar year and, accordingly, an employer will not be treated as failing to meet the
requirements of § 6051 for 2011, and will not be subject to any penalties for failure to
meet such requirements, merely because it does not report the aggregate cost of
applicable employer-sponsored coverage on Forms W-2 for 2011.

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Q-5: How is the aggregate reportable cost reported on Form W-2?

A-5: The aggregate reportable cost is reported on Form W-2 in box 12, using code DD.

Q-6: What rules apply in the case of coverage provided by the employer for a period
during a calendar year after an employee has terminated employment?

A-6: An employer may apply any reasonable method of reporting the cost of coverage
provided under a group health plan for an employee who terminated employment during
the calendar year, provided that the method is used consistently for all employees
receiving coverage under that plan who terminate employment during the plan year.
However, regardless of the method of reporting used by the employer for other
terminated employees, an employer is not required to report any amount in box 12,
Code DD for an employee who, pursuant to §31.6051-1(d)(1)(i), has requested before
the end of the calendar year during which the employee terminated employment to
receive a Form W-2.

Example 1
. Employee is an employee of Employer on January 1, and continues
in employment through April 25. During that entire period and through April 30,
Employee had individual coverage for himself under a group health plan with a
cost of coverage of $350 per month. Employee elects continuation coverage for
the six months following termination of employment, covering the period May 1
through October 31, for which the Employee pays $350 per month. Employer
reports $1,400 as the reportable cost under the plan for the calendar year,
covering the four months during which Employee performed services and had
coverage as an active employee. Employer applies this method consistently for
all employees terminating during the calendar year who have coverage under
that group health plan. Employer has applied a reasonable method of reporting
Employee’s reportable cost under the plan.

Example 2
. Same facts as Example 1, except that Employer reports $3,500 as
the reportable cost under the plan for the calendar year, covering both the
monthly periods during which Employee performed services and had coverage
as an active employee, and the monthly periods during which Employee retained
continuation coverage under the plan. Employer applies this method consistently
for all employees terminating during the calendar year who retained coverage
under that group health plan. Employer has applied a reasonable method of
reporting Employee’s reportable cost under the plan.

Q-7: In the case of an individual who is an employee of multiple employers within a
calendar year, must each employer provide a Form W-2 reporting the aggregate
reportable cost?

A-7: Each employer providing employer-sponsored coverage must report the
aggregate reportable cost of coverage it provides. However, if the employers are
related employers within the meaning of § 3121(s) and one such employer is a common

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paymaster within the meaning of § 3121(s) for wages paid to the employee, the
common paymaster must include the aggregate reportable cost of the coverage
provided to that employee by all the employers for whom it serves as the common
paymaster on the Form W-2 issued by the common paymaster. In such case, the
related employers that are not the common paymaster must not report the cost of
coverage they provide. For employers participating in a multiemployer healthcare plan,
see Q&A-17.

Q-8: In the case of an individual who transfers to a new employer that qualifies as a
successor employer under § 3121(a)(1), must both the predecessor and successor
employers report the aggregate reportable cost of coverage each provided?

A-8: Yes, unless the successor employer follows the optional procedure in Rev. Proc.
2004-53, 2004-2 C.B. 320, and issues one Form W-2 reflecting wages paid to the
employee during the calendar year by both the predecessor employer and the
successor employer. Consistent with the rules applicable to reporting of wages, the
successor employer following the optional procedure must include the aggregate
reportable cost of coverage provided by both employers on the Form W-2 that it issues,
and the predecessor employer must not report the cost of coverage it provides.

Q-9: Must an employer issue a Form W-2 including the aggregate reportable cost to an
individual to whom the employer is not otherwise required to issue a Form W-2, such as
a retiree or other former employee receiving no compensation required to be reported
on a Form W-2?

A-9: No. An employer is not required to issue a Form W-2 including the aggregate
reportable cost to an individual to whom the employer is not otherwise required to issue
a Form W-2.

Q-10: Is the total of the aggregate reportable costs attributable to an employer’s
employees required to be reported on Form W-3, Transmittal of Wage and Tax
Statements?

A-10: No. The total of the aggregate reportable costs attributable to an employer’s
employees is not required to be reported on Form W-3, Transmittal of Wage and Tax
Statements.

Aggregate Cost of Applicable Employer-Sponsored Coverage (Q&A-11 through
Q&A-15)

Q-11: What is the aggregate cost of applicable employer-sponsored coverage and how
is the aggregate cost of applicable employer-sponsored coverage referred to in this
notice?

A-11: The aggregate cost of applicable employer-sponsored coverage is the total cost
of coverage under all applicable employer-sponsored coverage (as defined in Q&A-12

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of this Notice) provided to the employee. In this notice, the cost of coverage under a
group health plan is referred to as the reportable cost and the aggregate cost of
applicable employer-sponsored coverage is referred to as the aggregate reportable
cost.

Q-12: What is applicable employer-sponsored coverage?

A-12: Applicable employer-sponsored coverage means, with respect to any employee,
coverage under any group health plan (see Q&A-13) made available to the employee by
an employer that is excludable from the employee’s gross income under § 106, or would
be so excludable if it were employer-provided coverage (within the meaning of such
§ 106), except that applicable employer-sponsored coverage does not include:

(1) any coverage for long-term care,
(2) any coverage (whether through insurance or otherwise) described in
§ 9832(c)(1) (other than subparagraph (G) thereof (coverage for on-site medical
clinics)),
(3) any coverage under a separate policy, certificate, or contract of insurance
which provides benefits substantially all of which are for treatment of the mouth
(including any organ or structure within the mouth) or for treatment of the eye,
and
(4) any coverage described in § 9832(c)(3) the payment for which is not
excludable from gross income and for which a deduction under § 162(l) is not
allowable.

See Q&A-16 through Q&A-23 for guidance on applicable employer-sponsored coverage
that is not required to be included in the aggregate reportable cost.

Q-13: What is a group health plan?

A-13: A group health plan is a plan (including a self-insured plan) of, or contributed to
by, an employer (including a self-employed person) or employee organization to provide
health care (directly or otherwise) to the employees, former employees, the employer,
others associated or formerly associated with the employer in a business relationship,
or their families. For purposes of identifying whether a specific arrangement is a group
health plan, taxpayers may rely upon a good faith application of a reasonable
interpretation of the statutory provisions and applicable guidance, including
§54.4980B-2, Q&A-1.

Q-14: Does the aggregate reportable cost include both the portion of the cost paid by
the employer and the portion of the cost paid by the employee?

A-14: Yes. The aggregate reportable cost generally includes both the portion of the
cost paid by the employer and the portion of the cost paid by the employee, regardless
of whether the employee paid for that cost through pre-tax or after-tax contributions.
However, see Q&A-19 regarding contributions to a health FSA.

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Q-15: Does the aggregate reportable cost include any portion of the cost of coverage
under an employer-sponsored group health plan that is includible in the employee’s
gross income, for example, the cost of coverage for a person other than an employee,
the employee’s spouse, the employee’s dependent, or the employee’s child who will not
have attained age 27 by the end of the taxable year?

A-15: Yes. The aggregate reportable cost includes the cost of coverage under the
employer-sponsored group health plan of the employee and any person covered by the
plan because of a relationship to the employee, including any portion of the cost that is
includible in an employee’s gross income. Thus, the aggregate reportable cost is not
reduced by the amount of the cost of coverage included in the employee’s gross
income.

Example
. An employee has family health coverage under an employer-
sponsored group health plan for himself, his spouse and dependents, and an
adult child age 28, with a cost of coverage of $15,000. The fair market value of
the health coverage for the adult child age 28 is included in the income and
wages of the employee. The aggregate reportable cost with respect to the family
health coverage is $15,000.

Cost of Coverage Required to be Included in the Aggregate Reportable Cost
(Q&A-16 through Q&A-23)

Q-16: Is the cost of coverage under all applicable employer-sponsored coverage
required to be included in the aggregate reportable cost?

A-16: Except as provided in this Q&A and in Q&A-17 through Q&A-23, the cost of
coverage under all applicable employer-sponsored coverage must be included in the
aggregate reportable cost. However, the following amounts are not included in the
aggregate reportable cost and are not permitted to be reported under § 6051(a)(14):

(1) the amount contributed to any Archer MSA (as defined in § 220(d)),
(2) the amount contributed to any Health Savings Account (as defined in
§ 223(d)), and
(3) the amount of any salary reduction election to a flexible spending
arrangement (within the meaning of §§ 106(c)(2) and 125).

Q-17: Is the cost of coverage under a multiemployer plan (as defined in § 54.4980B-2,
Q&A-3) required to be included in the aggregate reportable cost reported on Form W-2?

A-17: No. An employer that contributes to a multiemployer plan is not required to
include the cost of coverage provided to an employee under that multiemployer plan in
determining the aggregate reportable cost. If the only applicable employer-sponsored
coverage provided to an employee is provided under a multiemployer plan, the

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employer is not required to report any amount under § 6051(a)(14) on the Form W-2 for
that employee.

Q-18: Is the cost of coverage under a Health Reimbursement Arrangement (HRA)
required to be included in the aggregate reportable cost reported on Form W-2?

A-18: No. An employer is not required to include the cost of coverage under an HRA in
determining the aggregate reportable cost. If the only applicable employer-sponsored
coverage provided to an employee is an HRA, the employer is not required to report any
amount under § 6051(a)(14) on the Form W-2 for that employee.

Q-19: If an employer offers a health flexible spending arrangement (health FSA)
through a § 125 cafeteria plan, is the amount of the health FSA required to be included
in the aggregate reportable cost reported on Form W-2?

A-19: The amount of a health FSA for a cafeteria plan year equals the amount of salary
reduction (as defined in Proposed Treas. Reg. §1.125-1(r)) elected by the employee for
the plan year, plus the amount of any optional employer flex credits (as defined under
Proposed Treas. Reg. §1.125-5(b), expressed as a fixed amount, or as a formula such
as matching salary reduction), that the employee elects to apply to the health FSA. In
determining the aggregate reportable cost, the amount of the health FSA is reduced
(but not below zero) by the employee's salary reduction election (see Q&A-16).

If the amount of salary reduction (for all qualified benefits) elected by an employee
equals or exceeds the amount of the health FSA for the plan year, the employer does
not include the amount of the health FSA for that employee in the aggregate reportable
cost. However, if the amount of the health FSA for the plan year exceeds the salary
reduction elected by the employee for the plan year, then the amount of that employee’s
health FSA minus the employee’s salary reduction election for the health FSA must be
included in the aggregate reportable cost and reported under § 6051(a)(14).

For purposes of this Q&A-19, a health FSA means an FSA (as defined in Proposed
Treas. Reg. §1.125-5(a)) that is a medical reimbursement arrangement.

Example 1
: Employer maintains a § 125 cafeteria plan that offers permitted
taxable benefits (including cash) and qualified nontaxable benefits (including a
health FSA). The plan offers an employer flex credit of $1,000. Employee
makes a $2,000 salary reduction election for several qualified benefits under the
plan, including a health FSA for $1,500. The cost of the qualified benefits for
Employee under the plan for the year is $3,000. The amount of Employee’s
salary reduction election ($2,000) for the plan year equals or exceeds the amount
of the health FSA ($1,500) for the plan year. Thus, for purposes of reporting on
Form W-2, none of the health FSA amount is taken into account for purposes of
determining the aggregate reportable cost.

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Example 2: Employer maintains a § 125 cafeteria plan that offers permitted
taxable benefits (including cash) and qualified nontaxable benefits (including a
health FSA). The plan offers a flex credit in the form of a match of each
employee’s salary reduction contribution. Employee makes a $700 salary
reduction election for a health FSA. Employer provides an additional $700 to the
health FSA to match Employee’s salary reduction election. The amount of the
health FSA for Employee for the plan year is $1,400. The amount of Employee’s
health FSA ($1,400) for the plan year exceeds the salary reduction election
($700) for the plan year. The employer must include $700 ($1,400 health FSA
amount minus $700 salary reduction) in determining the aggregate reportable
cost.

Q-20: Is the cost of coverage under a dental plan or a vision plan included in the
aggregate reportable cost, if that plan is not integrated into a group health plan
providing other types of health coverage subject to the reporting requirements of
§ 6051(a)(14)?

A-20: No. An employer is not required to include the cost of coverage under a dental
plan or a vision plan if such plan is not integrated into a group health plan providing
additional health care coverage subject to the reporting requirements of § 6051(a)(14).
An employer must include the cost of coverage under a dental plan or a vision plan if
such plan is integrated into a group health plan providing such additional health care
coverage.

Q-21: Is the cost of coverage provided under a self-insured group health plan that is not
subject to any federal continuation coverage requirements (for example, a church plan
within the meaning of § 4980B(d)(3) that is a self-insured group health plan) required to
be included in the aggregate reportable cost reported on Form W-2?

A-21: No. An employer is not required to include in the aggregate reportable cost the
cost of coverage provided under a self-insured group health plan that is not subject to
any federal continuation coverage requirements. If the only group health plan coverage
provided to an employee by the employer is provided under a self-insured group health
plan that is not subject to any federal continuation coverage requirements, the employer
is not required to report any amount under § 6051(a)(14) on the Form W-2 for that
employee. Employers who provide coverage under a self-insured group health plan
that is subject to Federal continuation coverage requirements must report the cost of
coverage on Form W-2. For this purpose, federal continuation coverage requirements
include the COBRA requirements under the Code, the Employee Retirement Income
Security Act of 1974 or the Public Health Service Act and the temporary continuation
coverage requirement under the Federal Employees Health Benefits Program.

Q-22: Is the cost of coverage provided by the federal government, the government of
any State or political subdivision thereof, or any agency or instrumentality of any such
government, under a plan maintained primarily for members of the military or for

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members of the military and their families, required to be included in the aggregate
reportable cost reported on Form W-2?

A-22: No.

Q-23: In determining the aggregate reportable cost, how should an employer treat an
excess reimbursement of a highly compensated individual that is included in gross
income under § 105(h)?

A-23: The cost of applicable employer-sponsored coverage is not modified because of
excess reimbursements of highly compensated individuals that are included in gross
income under § 105(h); that is, an excess reimbursement that is included in income is
neither added to the cost of coverage, nor subtracted from the cost of coverage, in
determining the aggregate reportable cost.

Example
: Employer provides self-insured health coverage with a cost of
coverage of $12,000 under which a highly compensated individual receives a
$4,000 excess reimbursement. As a result, under § 105(h), that individual must
include the $4,000 excess reimbursement in gross income. The excess
reimbursement does not modify the determination of the aggregate reportable
cost, so that Employer must include $12,000 as the cost of coverage under the
plan in determining the aggregate reportable cost for that individual.

Methods of Calculating the Cost of Coverage (Q&A-24 through Q&A-27)

Q-24: How may an employer calculate the reportable cost under a plan?

A-24: An employer may calculate the reportable cost under a plan using the COBRA
applicable premium method (Q&A-25). Alternatively, (1) an employer that is
determining the cost of coverage for an employee covered by the employer's insured
plan may calculate the reportable cost using the premium charged method (Q&A-26);
and (2) an employer that subsidizes the cost of coverage or that determines the cost of
coverage for a year by applying the cost of coverage in a prior year may calculate the
reportable cost using the modified COBRA premium method (Q&A-27). For employers
that charge employees a composite rate (the same premium for different types of
coverage under a plan, for example, a premium for self-only coverage versus family
coverage), see Q&A-28.

The reportable cost for an employee receiving coverage under the plan is the sum of
the reportable costs for each period (such as a month) during the year as determined
under the method used by the employer. An employer is not required to use the same
method for every plan, but must use the same method with respect to a plan for every
employee receiving coverage under that plan.

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Q-25: How does an employer calculate the reportable cost for a period under the
COBRA applicable premium method?

A-25: Under the COBRA applicable premium method, the reportable cost for a period
equals the COBRA applicable premium for that coverage for that period. If the
employer applies this method, the employer must calculate the COBRA applicable
premium in a manner that satisfies the requirements under § 4980B(f)(4). Under
current guidance, the COBRA applicable premium calculation would meet these
requirements if the employer made such calculation in good faith compliance with a
reasonable interpretation of the statutory requirements under § 4980B (see
§54.4980B-1, Q&A-2).

Q-26: How does an employer calculate the reportable cost for a period under the
premium charged method?

A-26: The premium charged method may be used to determine the reportable cost only
for an employee covered by an employer’s insured group health plan. In such a case, if
the employer applies this method, the employer must use the premium charged by the
insurer for that employee’s coverage (for example, for single-only coverage or for family
coverage, as applicable to the employee) for each period as the reportable cost for that
period.

Q-27: How does an employer calculate the reportable cost for a period under the
modified COBRA premium method?

A-27: An employer may use the modified COBRA premium method with respect to a
plan only where it subsidizes the cost of COBRA (so that the premium charged to
COBRA qualified beneficiaries is less than the COBRA applicable premium) or where
the actual premium charged by the employer to COBRA qualified beneficiaries for each
period in the current year is equal to the COBRA applicable premium for each period in
a prior year. If the employer subsidizes the cost of COBRA, the employer may
determine the reportable cost for a period based upon a reasonable good faith estimate
of the COBRA applicable premium for that period, if such reasonable good faith
estimate is used as the basis for determining the subsidized COBRA premium. If the
actual premium charged by the employer to COBRA qualified beneficiaries for each
period in the current year is equal to the COBRA applicable premium for each period in
a prior year, the employer may use the COBRA applicable premium for each period in
the prior year as the reportable cost for each period in the current year.

Example 1
: For the calendar year 2012, Employer A subsidizes 50% of a
reasonable good faith estimate of the COBRA applicable premium. Employer A’s
reasonable good faith estimate of the COBRA applicable premium for self-only
coverage for each month in 2012 is $300. Accordingly, the actual COBRA
premium Employer A charges individuals eligible for COBRA continuation
coverage electing self-only coverage is $150 per month. Solely for purposes of
§ 6051(a)(14) reporting, if Employer A uses the modified COBRA premium

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method, it must treat $300 per month (the reasonable good faith estimate of the
COBRA applicable premium) as the monthly reportable cost for self-only
coverage for the calendar year 2012.

Example 2
: Employer B determined that the COBRA applicable premium for
each month in calendar year 2011 for individuals eligible for COBRA continuation
coverage electing self-only coverage would be $350 per month, and charged an
actual COBRA premium for such coverage of $357 per month ($350 x 102%).
Employer B knows that the cost of coverage for 2012 is not less than the COBRA
applicable premium for 2011 and decides not to make a new determination of the
COBRA applicable premium for the calendar year 2012 but rather to continue to
charge an actual COBRA premium for self-only coverage of $357 per month
($350 x 102%). Solely for purposes of § 6051(a)(14) reporting, if Employer B
uses the modified COBRA premium method, it must treat $350 per month ($357
charged - $7 increase permissible under COBRA) as the monthly reportable cost
for self-only coverage for the calendar year 2012.

Example 3
: Employer C makes a good faith estimate of the COBRA applicable
premium for the calendar year 2012 for individuals eligible for COBRA
continuation coverage electing self-only coverage of $500 per month. To ensure
compliance with the COBRA requirements despite not calculating a precise
COBRA applicable premium, Employer C charges an actual COBRA premium of
$350 per month for individuals eligible for COBRA coverage electing self-only
coverage. Solely for purposes of § 6051(a)(14) reporting, if Employer C uses the
modified COBRA premium method, it must treat $500 per month as the monthly
reportable cost for self-only coverage for the calendar year 2012.

Other Issues Relating to Calculating the Cost of Coverage (Q&A-28 through
Q&A-31)

Q-28: How may an employer charging an employee a composite rate calculate the
reportable cost for a period?

A-28: An employer is considered to charge employees a composite rate (1) if there is a
single coverage class under the plan (that is, if an employee elects coverage, all
individuals eligible for coverage under the plan because of their relationship to the
employee are included in the elections and no greater amount is charged to the
employee regardless of whether the coverage will include only the employee or the
employee plus other such individuals), or (2) if there are different types of coverage
under a plan (for example, self-only coverage and family coverage, or self-plus-one
coverage and family coverage) employees are charged the same premium for each
type of coverage. In such a case, the employer using a composite rate may calculate
and use the same reportable cost for a period for (1) the single class of coverage under
the plan, or (2) all the different types of coverage under the plan for which the same
premium is charged to employees, provided this method is applied to all types of
coverage provided under the plan.

15

For example, if a plan charges one premium for either self-only coverage, or self-and-
spouse coverage (the first coverage group), and also charges one premium for family
coverage regardless of the number of family members covered (the second coverage
group), an employer may calculate and report the same reportable cost for all of the
coverage provided in the first coverage group, and the same reportable cost for all of
the coverage provided in the second coverage group. In such a case, the reportable
costs under the plan must be determined under one of the methods described in Q&A-
25 through Q&A-27 for which the employer is eligible.

Q-29: If the reportable cost for a period changes during the year, must the reportable
cost under the plan for the year for an employee reflect the increase or decrease?

A-29: If the cost for a period changes during the year (for example, under the COBRA
applicable premium method because the 12-month period for determining the COBRA
applicable premium is not the calendar year), the reportable cost under the plan for an
employee for the year must reflect the increase or decrease for the periods to which the
increase or decrease applies. For examples of the application of this rule, see Q&A-30
below.

Q-30: How is the reportable cost under a plan calculated if an employee commences,
changes or terminates coverage during the year?

A-30: If an employee changes coverage during the year, the reportable cost under the
plan for the employee for the year must take into account the change in coverage by
reflecting the different reportable costs for the coverage elected by the employee for the
periods for which such coverage is elected. If the change in coverage occurs during a
period (for example, in the middle of a month where costs are determined on a monthly
basis), an employer may use any reasonable method to determine the reportable cost
for such period, such as using the reportable cost at the beginning of the period or at
the end of the period, or averaging or prorating the reportable costs, provided that the
same method is used for all employees with coverage under that plan. Similarly, if an
employee commences coverage or terminates coverage during a period, an employer
may use any reasonable method to calculate the reportable cost for that period,
provided that the same method is used for all employees with coverage under the plan.

The following examples illustrate the principles set forth in Q&A-29 and Q&A-30:

Example 1
: Employer determines that the monthly reportable cost under a group
health plan for self-only coverage for the calendar year 2012 is $500. Employee
is employed by employer for the entire calendar year 2012, and had self-only
coverage under the group health plan for the entire year. For purposes of
reporting for the 2012 calendar year, Employer must treat the 2012 reportable
cost under the plan for Employee as $6,000 ($500 x 12).

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Example 2: Employer determines that the monthly reportable cost under a group
health plan for self-only coverage for the period October 1, 2011 through
September 31, 2012 is $500, and that the monthly reportable cost under a group
health plan for self-only coverage for the period October 1, 2012 through
September 31, 2013 is $520. Employee is employed by employer for the entire
calendar year 2012 and had self-only coverage under the group health plan for
the entire year. For purposes of reporting for the 2012 calendar year, Employer
must treat the 2012 reportable cost under the plan for Employee as $6,060
(($500 x 9) + ($520 x 3)).

Example 3
: Employer determines that the monthly reportable cost under a group
health plan for self-only coverage for the calendar year 2012 is $500, and that
the monthly reportable cost under the same group health plan for self-plus-
spouse coverage for the calendar year 2012 is $1,000. Employee is employed
by Employer for the entire calendar year 2012. Employee had self-only coverage
under the group health plan from January 1, 2012 through June 30, 2012, and
then had self-plus-spouse coverage from July 1, 2012 through December 31,
2012. For purposes of reporting for the 2012 calendar year, Employer must treat
the 2012 reportable cost under the plan for Employee as $9,000 (($500 x 6) +
($1,000 x 6)).

Example 4
: Employer determines that the monthly reportable cost under a group
health plan for self-only coverage for the calendar year 2012 is $500. Employee
commences employment and self-only coverage under the group health plan on
March 14, 2012, and continues employment and self-only coverage through the
remainder of the calendar year. For purposes of reporting for the 2012 calendar
year, Employer treats the cost of coverage under the plan for Employee for
March 2012 as $250 ($500 x ½). Because Employer’s method of calculating the
reportable cost of under the plan for March 2012 by prorating the reportable cost
for March 2012 to reflect Employee’s date of commencement of coverage is
reasonable, Employer must treat the 2012 reportable cost under the plan for
Employee as $4,750 (($500 x ½) + ($500 x 9)).

Q-31: If an employer has used a 12-month determination period that is not the calendar
year for purposes of applying the COBRA applicable premium under a plan, may the
employer also use that 12-month determination period for purposes of calculating the
reportable cost for the year under the plan?

A-31: No. The reportable cost under a plan must be determined on a calendar year
basis. For rules on translating the COBRA applicable premium to a calendar year
amount, see Q&A-29 and Q&A-30.

IV. TRANSITION RELIEF

Certain provisions of this interim guidance provide transition relief intended to facilitate
compliance with the reporting requirement under § 6051(a)(14). See Q&A-3 (relief for

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employers filing fewer than 250 Forms W-2); Q&A-6 (relief with respect to certain Forms
W-2 furnished to terminated employees before the end of the year); Q&A-17 (relief with
respect to multiemployer plans); Q&A-18 (relief for HRAs); Q&A-20 (relief with respect
to certain dental and vision plans); and Q&A-21 (relief with respect to self-insured plans
of employers not subject to COBRA continuation coverage or similar requirements).
Future guidance may limit the availability of some or all of this transition relief; however,
such guidance will be prospective only and will not be applicable earlier than January 1
of the calendar year beginning at least six months after its date of issuance. In no case
will such guidance limit the availability of this transition relief for the 2012 Forms W-2
(meaning Forms W-2 for the calendar year 2012 that employers generally are required
to furnish to employees in January 2013 and then file with the SSA). For example, in no
event will reporting be required for 2012 Forms W-2 for any employer required to file
fewer than 250 2011 Forms W-2.

V. REQUEST FOR COMMENTS

The Treasury Department and the IRS request comments on all aspects of this interim
guidance and the reporting requirements under § 6051(a)(14), including areas that
should be addressed in proposed and final regulations or other future guidance.
Comments are requested on how future guidance could further reduce the burden of
compliance with the reporting requirements while still providing useful and comparable
consumer information to employees on the cost of their health care coverage. In
addition, the Treasury Department and the IRS request comments on any challenges
employers may face in implementing the reporting requirements for the 2012 Forms
W-2, and how further guidance could address those challenges, including through the
provision of additional transition relief. In particular, Treasury and IRS request
comments on issues that would arise in applying the reporting requirements to
employers contributing to multiemployer plans (see Q&A-17), such as the potential
methods by which the coverage provided to an employee could be allocated among the
contributing employers and the potential methods by which contributing employers
could obtain the requisite information to report the reportable cost. Comments are also
particularly requested as to issues that would arise in applying the reporting
requirements to employers that filed fewer than 250 Forms W-2 for the previous
calendar year (see Q&A-3), and to employers that sponsor a self-insured plan that is not
subject to any federal continuation coverage requirements (see Q&A-21).

Comments must be submitted by July 18, 2011. All materials submitted will be
available for public inspection and copying. Comments should be submitted to Internal
Revenue Service, CC:PA:LPD:RU (Notice 2011-28), Room 5203, PO Box 7604, Ben
Franklin Station, Washington, DC 20224. Submissions may also be hand-delivered
Monday through Friday between the hours of 8 a.m. and 4 p.m. to the Courier’s Desk,
1111 Constitution Avenue, NW, Washington, DC 20224, Attn: CC:PA:LPD:RU (Notice
2011-28), Room 5203. Submission may also be sent electronically via the internet to
the following email address: Notice.comments@irscounsel.treas.gov
. Include the
notice number (Notice 2011-28) in the subject line.

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VI. DRAFTING INFORMATION

The principal author of this notice is Leslie Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), though other
Treasury Department and IRS officials participated in its development. For further
information on the submission of comments or the comments submitted, contact Regina
Johnson at (202) 622-7180 (not a toll-free number). For further information on all other
provisions of this notice, contact Leslie Paul at (202) 622-6080 (not a toll-free number).