Healthcare Reform and You: W-2 Health Insurance Reporting Required for Certain Employers

Under the Affordable Care Act (ACA), employers must report the cost of employer-sponsored health care coverage on an employee’s W-2. This W-2 reporting is informational only, intended to provide useful details on the value of an employee’s health care benefits. At the same time, this reporting does not mean that coverage is taxable; rather, this amount continues to be excluded from an employee’s taxable income.

Who is affected?

According to the most recent IRS guidance, large employers who issue 250 or more W-2s for calendar year 2014 (to be distributed to employees in January 2015) are required to report the value of employer-sponsored health insurance. Though mandatory for these employers, the reporting is optional for small employers, or those who issue fewer than 250 W-2s. In fact, if you’re a small employer, you’ve qualified for transition relief from this reporting requirement from tax year 2012 to date, until the IRS issues new guidance.

Specifically, the reporting applies to employers who provide “applicable employer-sponsored coverage” under a group health plan. This includes private companies, churches, tax-exempt organizations, and federal, state and local government entities.

If you’re affected, here are some tips to keep in mind:

• Report the value of the health care coverage in Box 12 of the Form W-2, using Code DD to identify the amount
• The reported amount should include both the amount paid by you and the portion paid by the employee, regardless of whether it is paid by the employee on a pre-tax or after-tax basis
• You’re not required to report this information for retirees, former employees or other employees you wouldn’t otherwise provide a W-2
• Applicable coverage includes major medical coverage (whether fully insured or self-funded), prescription coverage, hospital or fixed indemnity coverage if pre-taxed and employer contributions to a Health Flexible Spending Arrangement (HFSA)
• Exempt from this reported amount are stand-alone dental and vision plans, employee pre-tax contributions to a HFSA, disability coverage, long-term care coverage, and Employee Assistance Programs (EAPs), wellness programs and onsite medical clinics when offered to qualified COBRA beneficiaries at no charge

Still have questions?

Consult a qualified tax professional for additional direction. Keep in mind, too, that the IRS’ small employer exception continues until the agency publishes new guidance, which would apply only to calendar years starting at least six months after the change.