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Setting the record straight on the W-2 panic

by Peter J. Marathas, Jr.

Because of health care reform, starting in 2011 employees will no longer be permitted to receive group health insurance from their employers on a tax-free basis, and employers will lose any corporate deductions they might have with respect to employer-provided health care benefits.

Sound bad? You bet, and it would be, especially if it were true. But it’s not true. Not even close. And yet you can easily find this bit of misinformation on the Internet at various Web sites and in posts by an assortment of anonymous bloggers.


A while back, my e-mail inbox was overloaded with inquiries from clients asking me about this “change” to the tax code. Some even suggested that I was asleep at the wheel for not alerting them about it.

Here’s a sample from the e-mail that many of my clients received:

Starting in 2011, the W-2 tax form sent by your employer will be increased to show the value of whatever health insurance you are provided. So you’ll be required to pay taxes on a larger sum of money that you actually received. Why am I sending you this? The same reason I hope you forward this to every single person in your address book. People have the right to know the truth because an election is coming in November. So vote intelligently, based on your values.

The last sentence, of course, reveals the context of this misinformation: election-year politics. And this bit of information was spread virally across the country, reaching thousands of e-mail boxes and prompting many HR and benefits professionals to worry about how this change would affect them.

However, as your parents most likely taught you, truth is never measured by the number of times something is said, or by the number of people who repeat it. For the record, like many lies, there is a kernel of truth in this one.

Straight from the horse’s mouth

PPACA does impose upon employers many new substantive and reporting requirements. With respect to Form W-2, it is true that the law will require employers in 2012 to enhance their W-2 reporting by including information detailing the costs incurred for providing health care to employees.

Specifically, W-2s for the 2011 tax year must include the “aggregate cost” of employer-sponsored group health insurance coverage, excluding any salary reductions deferred to a flexible spending account.

“Aggregate cost” is the cost of the insurance to the employer. We are expecting further guidance from the IRS on the factors to be used to determine this aggregate cost.

This episode should serve as a reminder to employee benefits and HR professionals: Always consider the reliability of the source for your legal guidance, especially when it comes to PPACA.

Benefits experts in cyberspace

One of the perils of the modern age is that anyone, regardless of training, experience or credentials, can establish himself or herself as an expert, ready to dispense guidance and counsel on tricky legal issues, including those arising under PPACA.

Many of these self-proclaimed experts will claim, in a largely self-serving way, that legal training is irrelevant and unnecessary. Their argument: Anyone can read a statute and figure out what it means, right? Frankly, wrong.

A well-trained lawyer learns early in her or his career that reading the statute, especially when it comes to either ERISA or the tax code, is only the first step in a very long and thoughtful analytical process.

When it comes to determining how a statutory requirement applies in a particular situation, information must be gleaned from numerous sources – case law from circuits around the country; complex regulations; and formal and informal guidance from the IRS, the Departments of Labor and Health and Human Services and other federal agencies.

There really are no shortcuts that bypass either the training required to undertake this review or the review process itself.

Benefits law in general, and PPACA specifically, is complicated enough on its own. Let’s not make it more difficult by listening to, or taking direction from, those ill-equipped to provide it. Let’s be careful out there.

Peter J. Marathas, Jr. is an employee benefits and executive compensation partner with Proskauer Rose LLP.


Editor: Lydell C. Bridgeford

Editorial advisor: Frank Palmieri, Palmieri and Eisenberg

Editorial contributors: Alston & Bird LLP; Curran Tomko Tarski LLP; Groom Law Group, Chartered; Mintz Levin Cohn Ferris & Popeo, P.C.; Keightley & Ashner LLP and Sutherland, Asbill & Brenan.

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