We are only weeks away from the first required reporting of employee health benefits on employee W2 forms. I suspect that payroll companies that serve small businesses are still working on communications and procedures for this. The fact is that the payroll companies don’t have access to the data to complete this requirement and their small business clients probably do not have it well organized either. Small businesses owners might not even be aware that some need to file this new tax retun.
The penalties for failure to report health benefits correctly are substantial. So what can be done?
Fortunately, relief is available for this issue. IRS will not impose penalties under sections 6721 and 6722 for 2015 returns and statements filed and furnished in 2016 on reporting entities that can show that they have made good faith efforts to comply with the information reporting requirements. But IRS makes it clear that no relief is provided in the case of reporting entities that cannot show a good faith effort to comply with the information reporting requirements or that fail to timely file an information return or furnish a statement.
Small businesses must file an information tax return and must be able to document a good faith effort to comply in order to avoid the tax penalties. A simple conversation with your accountant may solve the problem – at least for now. This is a situation where an ounce of prevention is worth a pound of cure.
See “Questions and Answers on Information Reporting by Health Coverage Providers (Section 6055)” for more information.