December 19, 2012
ALERT: Prepare Now for 2013 Payroll Changes
The end of 2012 is quickly approaching and 2013 will bring about numerous mandatory
changes to your payroll. A brief recap follows, to prepare both you and your employees for what
to expect next year.
Employee paychecks will change no matter what happens in the legislature
Your employees will notice a difference in their first paycheck of 2013 for a variety of reasons
and your employees will likely want to know why. The primary reasons are listed below:
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Unless legislative action is taken very soon, personal federal income tax rates increase
effective January 1, 2013. It is important to make sure your federal tax withholding tables
are updated before your first payroll in 2013.
Unless legislative action is taken, the employee portion of FICA will revert back to 6.2%
in 2013 (up from 4.2% in 2011 and 2012).
Effective January 1, 2013 an additional 0.9% Medicare tax will be levied on high-income
taxpayers. Employers are required to collect and remit the extra 0.9% on any and all
wages exceeding $200,000 per employee. This is an employee tax and does not affect
the employer Medicare withholding rate.
Kansas income tax rates will decrease effective January 1, 2013. It is important to make
sure all state tax withholding tables are updated before your first payroll in 2013.
Reporting of employer-provided health care coverage on Form W-2
This new reporting requirement is effective for Form W-2s that will be issued for wages paid in
2012. This informational-only data should include the total cost of the employer-provided
coverage, regardless of who is paying the costs. This means both the employee and employer
portion of premiums will be included.
The reporting requirement does NOT cause excludable employer-provided health insurance
coverage to become taxable and does not change the reporting requirements for amounts that
are includable in the employee’s income (e.g., excess reimbursements or coverage for a nonqualifying employee).
Relief for certain small employers – Employers who filed fewer than 250 W-2s for the 2011
year are not yet subject to this reporting requirement. This relief remains in effect until further
IRS guidance is issued. Such additional guidance will apply prospectively and will not apply to
any calendar year beginning within six months of the date the guidance is issued (IRS Notice
2012-9).
301 N. Main, Suite 1700 ● Wichita, Kansas 67202-4868 ● (316) 267-7231 ● (316) 267-0339 fax ● www.aghlc.com
AGH Employer Solutions year-end planning
Every year, AGH Employer Solutions provides clients of our payroll processing bureau with a
year-end planning packet that includes a summary of changes in taxes or other regulations
which will affect payroll calculations and tracking. This year’s packet also includes a wrap-up of
items which must be reported as part of health care costs and which don’t need to be. We
thought it would be beneficial to provide it to you as well as a reminder of payroll changes to
consider.
This information is provided to you as a courtesy to alert you of opportunities or risks which
could apply to your situation. If you have questions about the alert or how your payroll will be
affected, contact your AGH professional or call AGH vice president of outsourcing services
Cindy Henning at (316) 291-4101 or cindy.henning@aghlc.com.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and
cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that
may be imposed by the IRS or states, or promoting, marketing or recommending to another
party any transaction or matter addressed herein.
December 2012
As 2012 is winding down, it is important to plan for year-end payroll compliance reporting as
well as start thinking about upcoming changes in 2013.
INFORMATION TO PROVIDE FOR W-2 PREPARATION
1. Year End Processing Questionnaire – The enclosed questionnaire lists a variety of items
that can impact year-end reporting. Some of these questions are very technical, including
a variety of non-cash fringe benefits.
2. State Unemployment Experience Rating – Sometime in November or December you will
receive an Experience Rating Notice from the Kansas Department of Human Resources or
from any other states in which you have employees. Please forward these to your payroll
processor so they can correctly prepare your quarterly unemployment reports for next year.
FILING DEADLINE FOR 2012 FORMS W-2 AND W-3
The W-3 with attached copies of Form W-2 must be filed by February 28, 2013 with the Social
Security Administration and the applicable States. The employee’s W-2 must be handed or
mailed to the employee by January 31, 2013. Electronically filed Forms W-3 and W-2 are due
to the Social Security Administration by April 1, 2013.
EMPLOYEE FORMS
1. All new hires should complete a Federal W-4, State W-4 (if applicable), and an I-9. Form
I-9 must be retained by the employer for 3 years after the person begins work or 1 year
after the person’s employment is terminated, whichever is later. Employees that are not
making a change do not need to complete a new Form W-4 each year, with the exception
of employees that claim “exempt” from withholding.
Employees claiming “exempt” from withholding must complete a new W-4 form by
February 15. If the employees do not give their employer a new completed W-4 form by
February 15, the employer should begin withholding federal income tax as if they are
single, with zero withholding allowances.
The W-4 can be kept in the employee’s personnel file. It is recommended (but not
required) that I-9s be filed separately from the personnel file in case of an audit by the
Immigration and Naturalization Service (INS) or Department of Labor (DOL).
2. All states have new-hire reporting requirements. The State of Kansas requires that within
20 days of each new hire, rehire, or employee returning to work, the employer must report
the Social Security number, name and address of the new hire, AND the Employer’s
Federal ID number [nine digits] with the employer's name and address. This information
may be submitted online, via mail or fax.
3. Although personal use of a company-provided vehicle is taxable to the employee, the
employer may elect not to withhold income tax on the value of personal use of a companyprovided vehicle (FICA and Medicare taxes must be withheld). Whenever an employer
changes the option to withhold or not withhold, it must give notice to employees by
January 31 or within 30 days after the employer first gave the vehicle to the employee.
2013 CHANGES
1. Reporting of Employer-Provided Health Care Coverage on Form W-2 – This new
reporting requirement is effective for Form W-2s that will be issued for wages that are paid
in 2012. This informational-only data should include the total cost of the employer provided
coverage, regardless of who is paying the costs. This means both the employee and
employer portion of premiums will be included.
The reporting requirement does NOT cause excludable employer-provided health
insurance coverage to become taxable and does not change the reporting requirements for
amounts that are includable in the employee’s income (e.g., excess reimbursements or
coverage for a non-qualifying employee).
Relief for Certain Small Employers – Employers who filed fewer than 250 W-2s for the
2011 year are not yet subject to this reporting requirement. This relief remains in effect
until further IRS guidance is issued. Such additional guidance will apply prospectively and
will not apply to any calendar year beginning within six months of the date the guidance is
issued (IRS Notice 2012-9).
2. FICA Limits – The combined Social Security tax rate for 2013 will be 7.65% each for both
the employee and the employer share. Of that tax, 6.2% is for Old Age, Survivors and
Disability Insurance (OASDI, also known as FICA) and 1.45% is for hospital insurance
(Medicare). The OASDI wage base has increased to $113,700; there continues to be no
cap on Medicare tax withholding.
Note that, unless legislative action is taken, the employee portion of FICA will revert back
to 6.2% in 2013. The 2012 rate was 4.2%. Your employees will see this as a reduction in
take-home pay beginning in January.
3. Additional Medicare Tax on High Wage Earners – Effective January 1, 2013, an
additional 0.9% Medicare tax will be levied on high-income taxpayers. Employers are
required to collect and remit the extra 0.9% on any and all wages exceeding $200,000 per
employee. This tax is an employee tax and does not affect the employer Medicare
withholding rate.
4. Deferred Compensation Plan Limits
401(k), 403(b), 457 Deferral Limit
401(k), 403(b), 457 Catch-up Contribution Limit
SIMPLE Deferral Limit
SIMPLE 401(k) and IRA Catch-up Contribution Limit
Annual Compensation Limit
Social Security Wage Base
$
$
$
$
$
$
2013
Amount
17,500
5,500
12,000
2,500
255,000
113,700
5. Mileage – The 2013 standard mileage rates are set as follows:
Business transportation or travel
Medical care
Charity purposes
2013
Amount
$0.565
$0.240
$0.140
6. Minimum Wage – The Federal Minimum Wage is currently $7.25. The minimum wage in
Kansas for tipped employees remains at $2.13, so long as the employee earns enough in
tips to bring his or her wages up to the current minimum wage. While Kansas has no
change, several states are increasing their minimum wage, including Arizona, Colorado,
Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, and Washington. States still
pending an increase include Nevada and Vermont.
7. State Unemployment Taxable Wage Base – The State of Kansas unemployment taxable
wage base will remain at $8,000 for 2013. However, several states are increasing their
wage base, including Colorado, Georgia, Iowa, Kentucky, Minnesota, Montana, Nevada,
New Jersey, New Mexico, Oklahoma, Pennsylvania, Rhode Island, South Dakota,
Washington, and Wisconsin.
8. Reduction of FUTA Credits – Employers pay FUTA taxes of 6.0% on the first $7,000 of
wages paid to employees. This tax is offset by credits of up to 5.4% against their FUTA tax
liability for amounts paid to a state unemployment fund. As a result, the net FUTA tax rate
for most employers is .6%. Many states have borrowed from the federal government to
pay unemployment benefits. In the event the state defaults on repayment of the loan, the
amount for state unemployment tax credits that an employer in the state may claim is
reduced.
While Kansas employers will receive the full credit, credit-reduction states for 2012 include
Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky,
Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, Vermont,
Wisconsin and the Virgin Islands. Employers in those states will have to pay an additional
amount when filing their annual form 940.
If you have any questions, please feel free to contact us.
Respectfully,
Allen, Gibbs & Houlik, L.C.
Sonia J. Phillips
Payroll Manager
Year-End Payroll Processing Questionnaire
Client Information
Company Name:
_______________________________________
Prepared by:
_______________________________________
Year End:
12/31/2012
Instructions and Due Dates
This questionnaire is used to provide information regarding earnings that have NOT been previously processed with your
payroll. We’ve also attached definitions and explanations about these topics for your reference if you are unsure of your
response to any of these questions.
Additional Compensation
1. Deferred Compensation / Retirement Plan
List any employee(s) who was an active participant in a retirement plan, profit-sharing plan or other pension plan
funded by employer contributions.
Employee Name
Please list taxable payments or deferrals made under a section 409a Non-Qualified Deferred Comp Plan. List only
those employees/amounts that are not subject to substantial risk or forfeiture.
Employee Name
Amount
2. Group-term life insurance
Provide the name of any employee(s) who was provided group life insurance coverage in EXCESS of $50,000 in
2012 (active or terminated). If you have a statement from your carrier of the taxable amount, please include with this
questionnaire.
Employee Name
Age
Amount of Coverage
> $50,000
# of months covered
3. S-Corp shareholder accident/health insurance premiums
S-Corporation only – Provide information regarding 2% or more shareholders whose health insurance premiums were
paid by the company. The annual premium provided should include all parties covered (spouses, children).
Employee Name
Annual Premium
4. Third-Party Sick Pay
Provide the name of any employee(s) who received sick pay from a third-party sick-pay plan.
Employee Name
Amount
5. Employee Reimbursements
Excess Business Expense Reimbursement
List employees and amounts of reimbursements made to the employee(s) for business expense in excess of the
amounts allowed under government specified rates (i.e., mileage, transit passes, parking, etc.)
Employee Name
Amount
Unsubstantiated Reimbursements / Allowances
If you paid any employees unsubstantiated reimbursements or expense account allowance payments, these
payments are classified as income to the employee. List the employee name and any unsubstantiated payments.
Employee Name
Amount
Special Payments
List or attach copies of any special payments and the employees who received them (such as cash advances not paid
back or cash bonuses), as well as the corresponding withholding information.
Employee Name
Amount
Description
Personal Expenses
List employees, amounts and description for any payment made on behalf of an employee for personal expenses that
are not to be paid back.
Employee Name
Amount
Description
6. Personal Use of Business Vehicles
List employees who drive business vehicles for personal use. If more than one vehicle is used during the year by an
employee, provide number of months each vehicle was available for use by employee. The vehicle value will remain
the same for 4 years after which time it may be revalued.
Employee Name
Vehicle & Value
2012
Personal
Miles
2012 Total
Miles
# of Years
Available
for EE Use
2012 # of
Months
Available
Company
Provided
Fuel (Y/N)
List employee(s) required to drive a business vehicle to and from work and home.
Employee Name
# of Days Driven
7. Moving Expenses
List employees, amounts and description for any moving allowance or reimbursement paid.
Employee Name
Amount
Description
8. Employer-Paid Life Insurance
List below any employees covered under an employer-paid life insurance policy in which the beneficiary is the
employee (not group term life).
Employee Name
Beneficiary
Type (whole life,
split $)
Premium
Employer-Sponsored Health Coverage
9. Reporting of Employer-Sponsored Health Coverage on Form W-2
After referring to the Form W-2 Reporting of Employer-Sponsored Health Coverage chart included as part of this
package:
IF you filed MORE than 250 W-2s for the year ended 12/31/2011, provide all employer sponsored health coverage as
required in the above-referenced chart.
 Yes  No
Other Changes
10. Changes to Deferred Compensation / Retirement Plan
Have you made any changes to your Deferred Compensation / Retirement Plan in 2012?
Will you be making any changes to your Deferred Compensation / Retirement Plan in 2013?
 Yes
 Yes
 No
 No
If you responded yes to either question, please provide your payroll processor a summary of the changes, including
items that affect definition of compensation, modifications to match calculations, changes in the earnings considered
for deferral calculations, as well as maximums or minimums for deferrals.
____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
11. Changes to Section 125 / Cafeteria Plan
Have you made any changes to your Section 125 / Cafeteria Plan in 2012?
Will you be making any changes to your Section 125 / Cafeteria Plan in 2013?
 Yes
 Yes
 No
 No
If you responded yes to either question, please provide a summary of the changes, including deductions that have
been added or removed from the Plan, as well as any maximums for flexible spending accounts.
____________________________________________________________________________________________
____________________________________________________________________________________________
____________________________________________________________________________________________
Year-End Payroll Processing Questionnaire: Definitions
Definitions
This document provides additional information about the questionnaire topics. You may use these definitions to assist
you in determining how to respond to the questions.
1. Deferred Compensation / Retirement Plan
The W-2 requires that a box be checked for employees who are active participants in a retirement plan. Generally,
an employee is an active participant if covered by either of the following:
1. A defined benefit plan for any tax year that he or she is eligible to participate in, or
2. A defined contribution plan (for example, a section 401(k) plan) for any tax year that employer or employee
contributions (or forfeitures) are added to his or her account
For additional information on employees who are eligible to participate in a plan, contact your plan administrator.
For details on the active participant rules, see Notice 87-16, 1987-1 C.B. 446, Notice 98-49, 1998-2 C.B. 365,
section 219(g)(5), and Pub. 590, Individual Retirement Arrangements (IRAs). You can find Notice 98-49 on page 5
of Internal Revenue Bulletin 1998-38 at www.irs.gov/pub/irs-irbs/irb98-38.pdf.
Per the instructions, check this box if the employee was an “active participant” (for any part of the year) in any of the
following:
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A qualified pension, profit-sharing, or stock-bonus plan described in section 401(a) (including a 401(k) plan)
An annuity plan described in section 403(a)
An annuity contract or custodial account described in section 403(b)
A simplified employee pension (SEP) plan described in section 408(k)
A SIMPLE retirement account described in section 408(p)
A trust described in section 501(c)(18)
A plan for federal, state, or local government employees or by an agency or instrumentality thereof (other
than a section 457(b) plan)
2. Group-term life insurance
If you paid for group-term life insurance over $50,000 for an employee or a former employee, you must report the
taxable cost of excess coverage, determined by using the table in section 2 of Pub. 15-B, in boxes 1, 3, and 5 of
Form W-2. Also, show the amount in box 12 with code C. For employees, you must withhold Social Security and
Medicare taxes, but not federal income tax. Former employees must pay the employee part of Social Security and
Medicare taxes on the taxable cost of group-term life insurance over $50,000 on Form 1040. You are not required
to collect those taxes. However, you must report the uncollected Social Security tax with code M and the
uncollected Medicare tax with code N in box 12 of Form W-2.
3. S-Corporation shareholder accident/health insurance premiums
The total of health, dental, life and disability insurance payments paid by an S-Corporation for shareholders who
own greater than 2% of the outstanding stock should be reported on the shareholders’ W-2s in boxes 1 and 16
along with their regular wages. These fringe benefits are not subject to Social Security, Medicare or federal
unemployment taxes and therefore should not be included in Boxes 3 and 5 of the W-2.
4. Third-Party Sick Pay
In general, sick pay is any amount you pay under a plan to an employee who is unable to work because of sickness
or injury. These amounts are sometimes paid by a third party, such as an insurance company or an employees'
trust. In either case, these payments are subject to Social Security, Medicare, and FUTA taxes. Sick pay becomes
exempt from these taxes after the end of 6 calendar months after the calendar month the employee last worked for
the employer. The payments are always subject to federal income tax. See Publication 15-A for more information.
5. Employee Reimbursements
A reimbursement or allowance arrangement is a system by which you pay the advances, reimbursements, and
charges for your employees' business expenses. How you report a reimbursement or allowance amount depends
on whether you have an accountable or a nonaccountable plan. If a single payment includes both wages and an
expense reimbursement, you must specify the amount of the reimbursement.
These rules apply to all ordinary and necessary employee business expenses that would otherwise qualify for a
deduction by the employee.
Accountable plan. To be an accountable plan, your reimbursement or allowance arrangement must require your
employees to meet all three of the following rules.
1. They must have paid or incurred deductible expenses while performing services as your employees. The
reimbursement or advance must be paid for the expense and must not be an amount that would have
otherwise been paid by the employee.
2. They must substantiate these expenses to you within a reasonable period of time.
3. They must return any amounts in excess of substantiated expenses within a reasonable period of time.
Amounts paid under an accountable plan are not wages and are not subject to the withholding and payment of
income, Social Security, Medicare, and federal unemployment (FUTA) taxes.
If the expenses covered by this arrangement are not substantiated (or amounts in excess of substantiated
expenses are not returned within a reasonable period of time), the amount paid under the arrangement in excess of
the substantiated expenses is treated as paid under a nonaccountable plan. This amount is subject to the
withholding and payment of income, Social Security, Medicare, and FUTA taxes for the first payroll period following
the end of the reasonable period of time.
A reasonable period of time depends on the facts and circumstances. Generally, it is considered reasonable if your
employees receive their advance within 30 days of the time they incur the expenses, adequately account for the
expenses within 60 days after the expenses were paid or incurred, and return any amounts in excess of expenses
within 120 days after the expenses were paid or incurred. Also, it is considered reasonable if you give your
employees a periodic statement (at least quarterly) that asks them to either return or adequately account for
outstanding amounts and they do so within 120 days.
Nonaccountable plan. Payments to your employee for travel and other necessary expenses of your business
under a nonaccountable plan are wages and are treated as supplemental wages and subject to the withholding and
payment of income, Social Security, Medicare, and FUTA taxes. Your payments are treated as paid under a
nonaccountable plan if:
 Your employee is not required to or does not substantiate timely those expenses to you with receipts or
other documentation
 You advance an amount to your employee for business expenses and your employee is not required to or
does not return timely any amount he or she does not use for business expenses, or
 You advance or pay an amount to your employee regardless of whether you reasonably expect the
employee to have business expenses related to your business
 You pay an amount as a reimbursement you would have otherwise paid as wages
Per diem or other fixed allowance. You may reimburse your employees by travel days, miles, or some other
fixed allowance under the applicable revenue procedure. In these cases, your employee is considered to have
accounted to you if your reimbursement does not exceed rates established by the Federal Government. The 2012
standard mileage rate for auto expenses is 55.5 cents per mile. The government per diem rates for meals and
lodging in the continental United States are listed in Publication 1542, Per Diem Rates. Other than the amount of
these expenses, your employees' business expenses must be substantiated (for example, the business purpose of
the travel or the number of business miles driven).
If the per diem or allowance paid exceeds the amounts specified, you must report the excess amount as wages.
This excess amount is subject to income tax withholding and payment of Social Security, Medicare, and FUTA
taxes. Show the amount equal to the specified amount (for example, the nontaxable portion) in box 12 of Form W-2
using code L.
Wages not paid in money. If in the course of your trade or business you pay your employees in a medium that is
neither cash nor a readily negotiable instrument, such as a check, you are said to pay them “in kind.” Payments in
kind may be in the form of goods, lodging, food, clothing, or services. Generally, the fair market value of such
payments at the time they are provided is subject to federal income tax withholding and Social Security, Medicare,
and FUTA taxes.
6. Business Vehicles
You may choose not to withhold income tax on the value of an employee's personal use of a vehicle you provide.
You must, however, withhold Social Security and Medicare taxes on the use of the vehicle. See Publication 15-B for
more information on this election.
Vehicle allocation rules. If you provide a car for an employee's use, the amount you can exclude as a working
condition benefit is the amount that would be allowable as a deductible business expense if the employee paid for
its use. If the employee uses the car for both business and personal use, the value of the working condition benefit
is the part determined to be for business use of the vehicle. See Business use of your car under Personal versus
Business Expenses in chapter 1 of Publication 535. Also, see the special rules for certain demonstrator cars and
qualified nonpersonal-use vehicles discussed below.
However, instead of excluding the value of the working condition benefit, you can include the entire annual lease
value of the car in the employee's wages. The employee can then claim any deductible business expense for the
car as an itemized deduction on his or her personal income tax return. This option is available only if you use the
lease value rule to value the benefit.
If you provided your employee a vehicle and included 100% of its annual lease value in the employee's income, you
must separately report this value to the employee in box 14 (or on a separate statement). The employee can then
figure the value of any business use of the vehicle and report it on Form 2106, Employee Business Expenses. Also
see Pub. 15-B for more information
Qualified nonpersonal-use vehicles. All of an employee's use of a qualified nonpersonal-use vehicle is a
working condition benefit. A qualified nonpersonal-use vehicle is any vehicle the employee is not likely to use more
than minimally for personal purposes because of its design. Qualified nonpersonal-use vehicles generally include all
of the following vehicles.
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

Clearly marked, through painted insignia or words, police and fire vehicles
Unmarked vehicles used by law enforcement officers if the use is officially authorized
An ambulance or hearse used for its specific purpose
Any vehicle designed to carry cargo with a loaded gross vehicle weight over 14,000 pounds
Delivery trucks with seating for the driver only, or the driver plus a folding jump seat
A passenger bus with a capacity of at least 20 passengers used for its specific purpose
School buses
Tractors and other special-purpose farm vehicles
7. Moving Expenses
The following moving expenses are taxable:
 Pre-move house-hunting trips
 Temporary living expenses for 30 days in the general area of the workplace
 Selling or settling an unexpired lease on the old residence and buying or acquiring a lease on the new
address
 Real estate transactions
 Any meals connected with the relocation
The only expenses that are still deductible (with no dollar limit on the deduction) are: expenses incurred in moving
household goods and personal expenses incurred in traveling (including lodging but not meals) from the old
residence to the new residence.
To qualify for these deductions, the distance between the employee’s new workplace and his old residence must be
at least 50 miles farther than the distance between the employee’s old workplace and his or her old residence.
Reimbursements or direct payments by the employer for qualified moving expenses do not have to be reported as
income. However, employers must report those qualified moving expenses paid directly to the employee on Form
W-2 using Code P in box 12.
8. Employer-Paid Life Insurance
IRC section 79 provides an exclusion for the first $50,000 of group-term life insurance coverage provided under a
policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of such
policies does not exceed $50,000. The imputed cost of coverage in excess of $50,000 must be included in income,
using the IRS Premium Table, and is subject to Social Security and Medicare taxes.
Carried Directly or Indirectly by the Employer
A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly
by the employer. A policy is considered carried directly or indirectly by the employer if:
1. The employer pays any cost of the life insurance, or
2. The employer arranges for the premium payments and the premiums paid by at least one employee
subsidize those paid by at least one other employee (the “straddle” rule)
The determination of whether the premium charges straddle the costs is based on the IRS Premium Table rates,
not the actual cost. You can view the Premium Table in the group-term life insurance discussion in Publication 15-B.
Because the employer is affecting the premium cost through its subsidizing and/or redistributing role, there is a
benefit to employees. This benefit is taxable even if the employees are paying the full cost they are charged. You
must calculate the taxable portion of the premiums for coverage that exceeds $50,000.
Coverage for Spouse and Dependents
The cost of employer-provided group-term life insurance on the life of an employee’s spouse or dependent, paid by
the employer, is not taxable to the employee if the face amount of the coverage does not exceed $2,000. This
coverage is excluded as a de minimis fringe benefit. Whether a benefit provided is considered de minimis depends
on all the facts and circumstances. In some cases, an amount greater than $2,000 of coverage could be considered
a de minimis benefit. See Notice 89-110 for more information.
9. Changes to Deferred Compensation / Retirement Plan
Changes to a Deferred Compensation / Retirement plan may affect taxable wages, the calculation of deferrals
(based upon earnings that are to be included), and other items. Additionally, match calculations that are processed
on a per-pay-period basis are defined in the payroll software. Notify your payroll processor of these changes so
that employee deferrals, employer contributions, and taxes are calculated properly.
10. Changes to Section 125 / Cafeteria Plan
Changes made to a Section 125 / Cafeteria Plan may affect the taxability of deductions. Notify your payroll
processor of these changes so that employee taxes are calculated properly.
11. Form W-2 Reporting of Employer-Sponsored Health Coverage
This new reporting requirement is effective for Form W-2s that will be issued for wages paid in 2012. This
informational-only data should include the total cost of the employer-provided coverage, regardless of who is paying
the costs. This means both the employee and employer portion of premiums will be included.
Employers who filed fewer than 250 W-2s for the 2011 year are not yet subject to this reporting requirement. This
relief remains in effect until further IRS guidance is issued. Such additional guidance will apply prospectively and
will not apply to any calendar year beginning within six months of the date the guidance is issued (IRS Notice 20129).
The following chart indicates what coverage is required to be reported on Form W-2.
FORM W-2 REPORTING OF EMPLOYER-SPONSORED HEALTH COVERAGE
1
This chart can be used to determine which employer health benefits
should be reported on Form W-2 in box 12 using code DD. Coverage Type
Major medical
Dental or vision plan not integrated into another medical or health plan
Dental or vision plan which gives the choice of declining or electing and paying an
additional premium
Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts
Health FSA value for the plan year in excess of employee’s cafeteria plan salary
reductions for all qualified benefits
Health Reimbursement Arrangement (HRA) contributions
Health Savings Arrangement (HSA) contributions (employer or employee)
Archer Medical Savings Account (Archer MSA) contributions (employer or employee)
Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis
Hospital indemnity or specified illness (insured or self-funded), paid through salary
reduction (pre-tax) or by employer
Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare
coverage
On-site medical clinics providing applicable employer-sponsored healthcare coverage
Wellness programs providing applicable employer-sponsored healthcare coverage
Multi-employer plans
Domestic partner coverage included in gross income
Governmental plans providing coverage primarily for members of the military and their
families
Federally recognized Indian tribal government plans and plans of tribally charted
corporations wholly owned by a federally recognized Indian tribal government
Self-funded plans not subject to Federal COBRA
Accident or disability income
Long-term care
Liability insurance
Supplemental liability insurance
Workers' compensation
Automobile medical payment insurance
Credit-only insurance
Excess reimbursement to highly compensated individual, included in gross income
Payment/reimbursement of health insurance premiums for 2% shareholder-employee,
included in gross income
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year
(determined without application of any entity aggregation rules for related employers)
Forms W-2 furnished to employees who terminate before the end of a calendar year and
request, in writing, a Form W-2 before the end of that year
Forms W-2 provided by third-party sick-pay provider to employees of other employers
1
2
3
4
Form W-2, Box 12, Code DD
Do Not
Report
Optional
Report
X
X
X
X
X
X
X2
X2
X
X
X3
X4
X3
X3
X4
X4
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
This chart is adapted from a table provided at www.irs.gov.
HSAs and Archer MSAs are, however, reported on Form W-2 in box 12, using codes W and R, respectively.
Reporting is required for all individuals (including active employees) if the employer charges a COBRA premium for this
coverage for individual electing COBRA benefits.
Reporting is optional for all individuals (including active employees) if the employer does not charge a COBRA premium for this
coverage for individuals electing COBRA benefits.