New Payroll Reporting Rule. Employers must focus quickly on a new Minnesota law enacted this month. The law requires all employers to make a new annual report to each Minnesota employee. The report must include the dollar amount of any health insurance premiums paid by the employee (on a pre-tax basis) through a "cafeteria" plan under Section 125 of the Internal Revenue Code.

The new report must be made when the employee is sent a Treasury Form W-2 by the employer. The first reports will be due in January 2010 and must include all premiums paid during 2009. This rule is in a new Minnesota statute (Section 290.0678, subd. 4) that is effective for premiums paid during and after January 2009.

What Should Employers Do?

1. Prepare Now for the First Report. Work with your payroll and benefits administrators to begin collecting data for the report due in January 2010. This data will generally be drawn from your records used to create each Minnesota employee's pay stub. If pay stubs do not separately itemize pre-tax deductions for health insurance premiums, systems must be changed quickly to gather that data for all 2009 deductions.

2. Consider Legislative Action. Employers should consider taking action to convince the Minnesota legislature to narrow or repeal this rule before the legislature adjourns. Why? These reports will be expensive to generate, and impose a new cost during a time of economic stress. The new cost will be spent to obtain only a small amount of data needed by the state. That data is explained below.

Limited Purpose for New Report. The State of Minnesota needs the new report only to verify whether a few Minnesota employees are eligible for a new tax credit (in the same statute) equal to 20% of the health insurance premiums paid through a "cafeteria plan." The group of eligible employees is very small because:

(a) the credit applies only if the employee enrolls after having had no health coverage for at least a year;

(b) the credit is allowed for only the first 12 months of premiums; and

(c) the credit is allowed only for employees whose income is either:

(1) between 200% and 275% of the federal poverty guidelines (if he or she has no dependents), or

(2) between 275% and 300% of the federal poverty guidelines (if he or she has dependents).

Please contact us with any questions or concerns you may have regarding this important issue.

Our attorneys are ready to help.

Mark Baumann
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Larry Koch
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Jessica Pecoraro
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André LaMere
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Labor & Employment
Employee Benefits

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