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PEO Industry Best Practice: W-2 Reporting Requirements Under the ACA

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PEO Industry Best Practice: W-2 Reporting Requirements Under the ACA

Summary

The ACA requires employers to report the cost of employer-sponsored healthcare coverage as part of the W-2 form issued to employees.

Issues

  • Under what circumstances should the responsibility for W-2 reporting fall to the PEO or to the client?
  • For client-sponsored and client-paid health insurance premiums, should the PEO include the value on the PEO-issued W-2 or should the client produce and file W-2s with only the value of the health insurance on the forms?

Suggested Best Practice

PEO-Sponsored Plan:

If the PEO is maintaining its group health plan as a single-employer plan, the PEO should report the aggregate cost of applicable employer-sponsored health coverage.  As the plan sponsor, the PEO may regard itself as an employer for health plan purposes under such a plan.    If the PEO has 250 or more employees, then it is recommended that the PEO report the cost of such coverage on the W-2 without regard for the size of the worksite employer. 

Client-Sponsored Plan:

Because PEOs provide the W-2s for their worksite employees, the PEO should include the healthcare cost information on the W-2 it is already using.  The challenge may be obtaining the correct cost information and accurately reporting it on the W-2s.  The PEO would need to setup a procedure to either capture the information from the client or develop a protocol to have the client report it on a timely basis.  It is also encouraged to create an indemnification agreement signed by the client that acknowledges that the information is correct and accurate.

This recommendation is more consistent with the position that the PEO is an employer.  While current guidelines dictate that information is reportable at 250 or more employees, exceptions could occur if the PEO only manages a subdivision of a control group, or the PEO entity itself manages less than 250 employees.  However, it is considered the best practice for the PEO industry to consistently report the information on the W-2 if the PEO has access to the cost of the employer-sponsored healthcare coverage. 

Since this issue was not addressed in the colloquy, it could be taken as an indication that the PEO is responsible for reporting as the employer issuing the W-2 and is more probable that over-reporting versus under-reporting would not be penalized.