The IRS took considerable effort to clarify the reason for documenting the value of health benefits on employees' tax forms: When legislators crafted this provision of the ACA, they were hoping to give the feds a new way to aggregate data on the cost of benefits.

By requiring documentation of benefit costs on workers' tax forms, the IRS wanted to empower employers to offer "useful and comparable consumer information" to workers "on the cost of their health coverage," according to an IRS fact sheet last updated in March 2016.

After the ACA was implemented, the IRS issued "transitional relief" for certain employers. Those that qualify for it will be exempt from the ACA's W-2 reporting requirements "until the IRS publishes guidance, giving at least six months of advance notice of any change to the transitional relief," according to another IRS fact sheet last updated on August 6, 2016. This means that any elimination of relief wouldn't occur until after February 2017, after W-2s are typically issued.

So when employers ask benefits brokers whether their exemption will extend into next year's tax season, it's safe to say "yes."

What companies qualify for relief

Employers that file fewer than 250 W-2 forms annually are exempt from the health coverage cost documentation requirement. Again, the IRS says that if this changes, regulators will offer at least six months' advance notice.

What do non-exempt employers have to include?

For those employers that will file more than 250 W-2 forms this year, the IRS says that the amount reported should include the portions of premium paid by the employer and the employee.

For flexible spending accounts, the IRS continues, the amount reported should not include employee contributions contributed via payroll deduction.

Similar information does not need to be provided to retirees, former employees, or any other people who would not normally receive a W-2 from the company.

Does the cost of voluntary benefits have to be documented on W-2 forms?

For employers that do not qualify for the transitional relief (i.e., those filing more than 250 W-2 forms this year), they do not need to include the cost of 100 percent after-tax employee-paid voluntary benefitson the W-2 forms.

For "specified disease" voluntary insurance products like critical illness coverage and voluntary cancer policies, employers must include the value of those supplemental benefits only when employers contribute to the cost of coverage, or if employees purchase the coverage on a pre-tax basis through a cafeteria plan, according to an IRS Q&A (emphasis added).

Ancillary vision and dental coverage

Employers are not required to include the cost of vision and dental plans when those plans satisfy the requirements of exemptions under HIPAA. This means that vision and dental benefits offered separately from major medical coverage – those on which participants cannot elect for additional premium or contribution – do not need to be included on W-2 forms, according to IRS guidance.

The broker value-add

Notwithstanding the surge in sponsor adoption over the past five years, tens of thousands of employers have yet to offer voluntary offerings – strange, considering how well voluntary products can address the issue of rising employer premiums.

Yet another year of data suggests those sponsors that have been reluctant to offer voluntary benefits in the past may be more motivated to consider the option this time around.

The Society of Human Resources Management reports that in 2015, 77 percent of employers saw health care premiums increase; about one-quarter of those employers saw cost of overall health coverage rise 16 percent.

For small and midsized employer struggling to comply with ACA reporting requirements, the good news is that the W-2 exemption should extend for at least another year. And ancillary vision and dental benefits, along with employee-funded voluntary health plans, will only need to be included on W-2 forms issued by employers with more than 250 employees.

Maybe this is only a small relief in ACA's compliance web. But, no doubt, employers will welcome any relief they can get.

Relevant IRS documents on the ACA's W-2 reporting provisions can be found here, and here. 

[Click through to the next page for an informative chart containing what must be reported on form W-2.]