As the manufacturing industry transitions from recession into recovery mode, the underlining drivers of success — pricing discipline, proactive cost management, quality systems and supply chain management — are once again front and center as companies struggle to keep up. The recent Food Safety Modernization Act (FSMA) presents additional challenges for food and beverage companies working to ensure efficient, cost-saving supply chains as well as manage employees from around the nation. In addition to FSMA, several other regulatory requirements are making it increasingly challenging for food and beverage companies to achieve effective cost savings and future compliance.
For example, the Patient Protection and Affordable Care Act of 2010 added Section 6051(a)(14) to the Internal Revenue Code, requiring all employers to compile the appropriate information and report on Form W-2 the aggregate cost of “applicable employer-sponsored group health coverage” (without regard to whether the cost is paid by the employer or employee).
For many employers, the reporting obligation is required for the 2012 tax year — that is, it will apply generally to 2012 Form W-2s furnished in January 2013. It will also apply to any W-2s issued in 2012 reporting 2012 wages. Reporting this information was optional for 2011 W-2s.
The new requirement calls for informational reporting only — it doesn’t cause excludable benefits to become taxable or change the tax treatment in any way. The purpose of this new W-2 reporting requirement is “to provide useful and comparable consumer information to employees on the cost of their health care coverage.”
Qualifying small employers — those required to file fewer than 250 W-2s for the 2011 calendar year — do not have to comply until the IRS issues additional guidance. This may cause many employers in the food processing industry to breathe a sigh of relief, but remember, the regulation applies to seasonal employees as well. It’s not unusual for companies to have 50 full-time employees but well more than 250 W2s due to the seasonal nature of their businesses. Complying with this regulation, therefore, may prove challenging.
A Little Background
Applicable employer-sponsored group health coverage generally includes any employer-provided group health plan coverage under an insured or self-insured plan that is excludable from the employee’s gross income under IRC Section 106, or would be excluded if the coverage were paid for by the employer. Examples of applicable employer-sponsored coverage include:
- Medical plans
- Prescription drug plans
- Dental and vision plans that are part of, or bundled with, the employer’s group medical or prescription drug plans
- Executive physicals
- On-site clinics if they provide more than de minimis care
- Medicare supplemental policies
- Employee assistance programs
For W-2 reporting purposes, applicable employer-sponsored group health coverage excludes:
- Long-term care
- Stand-alone dental and/or vision plans
- HIPAA-excepted benefits, such as accident or disability income insurance, supplemental liability insurance, or workers’ compensation — except for on-site medical clinics
- Coverage under a hospital indemnity or fixed indemnity plan — or for a specific illness or disease — if offered as an independent, non-coordinated benefit
- Government-sponsored plans providing coverage primarily for members of the military and their families
In addition, employer or employee contributions to a Health Savings Account (HSA) or employee salary reduction contributions to a Flexible Spending Account (FSA) shouldn’t be included when calculating an employee’s total cost of coverage.
For reporting purposes, employers generally use the same value for all similarly situated employees receiving the same category of coverage. Therefore, a common value would be used for all employees electing single coverage and a different common value would be used for all employees electing family coverage.
If an employee enrolls in employer-sponsored health insurance coverage under multiple plans, the aggregate value, including employer and employee paid premiums, of all such health coverage must be disclosed.
If an employee enrolls in employer-sponsored health insurance coverage under a major medical plan and related or bundled dental and vision plans, the employer is required to report the total value of the combination of all of these health related insurance policies.
Employers should not provide a specific breakdown of the various types of coverage but must only report an aggregate cost.
Important Next Steps
First, determine whether you’re subject to the new reporting requirements. Are you an exempt “qualified small employer”? If not, determine what information you need to gather and develop a plan to accumulate it. Many group insurance carriers, payroll service providers and group benefits advisory practices have already, or are quickly, developing programs to respond to this need for information.
The food processing industry is home to many seasonal employees — and reimbursement and self-insurance fringe benefits — that may make complying with this regulation challenging.
Mariann Krieger, CPA, is a partner with Plante Moran’s tax practice. She specializes in assisting clients in the food and beverage industry with an array of tax planning and consulting concerns.