As we near the end of the year, there are several tax-related employee benefits items you will want to review with your payroll colleagues to make sure they are ready to provide your employees with accurate financial information for their 2014 tax returns. Ideally most of this will already be in place with the help of your payroll or benefit system vendors so that little additional work would be required now.
EXCESS GROUP TERM LIFE
The IRS views any employer sponsored term life benefit over $50,000 as an economic benefit (aka imputed income) to the employee. The monthly economic benefit is determined by applying the IRS Premium Table (Table 2-2)
to the amount of group term life insurance in excess of $50,000 and adding that amount to an employee's taxable income (including Social Security and Medicare). This applies only to employer-paid coverage, not to any voluntary coverage that the employee pays for themselves. If the taxable amount hasn't been added to the employee's taxable income during the year, the amount will need to be calculated and added to their paycheck before the end of the year or to their 2014 W-2 in full.
DOMESTIC PARTNER COVERAGE
Similar to the above, any amount paid by an employer towards health benefits (including dental and vision) for an employee's domestic partner is considered an economic benefit to the employee. The amount may be calculated by multiplying the monthly premium for the domestic partner's coverage by 12 (be sure to subtract the amount paid for the employee's coverage, as well as any amount the employee contributes towards the premium each month
). This amount will need to be added to the employee's W-2 as taxable income if it hasn't already been taxed throughout the year. Also remember that if the employee makes a contribution towards coverage for their domestic partner, the portion of the premium for the domestic partner must be applied as a post-tax
W-2 REPORTING OF EMPLOYER-SPONSORED HEALTH COVERAGE
As required by the Affordable Care Act, employers who are issuing 250 or more W-2s
for 2014 need to provide the total annual cost of an individual's health care insurance premiums in Box 12 of their W-2 form. The figure should include the cost of medical coverage (employer and employee costs combined); the cost of EAP coverage (if you charge a separate COBRA premium for it); and the value of any employer
FSA contributions. You may also choose to include the costs for other types of coverage.
This information reporting requirement is meant to provide the employee with comparable consumer information about the cost of their health care coverage. The complete list of required and optional items is at Form W-2 Reporting of Employer Sponsored Health Coverage
We recommend planning for these items, as needed, at your soonest convenience to ensure plenty of time for accurate reporting during the year-end rush.