Reporting Employer-Sponsored Health Coverage on Form W-2: What Employers Need to Know
By Mary Ellen Schill
September 19, 2012
Have your Health Care Reform Checklist handy? Earlier this month we shared with you our “Getting on Track With Health Care Reform: Stop, Look, and Listen,” to help you “pack your bags” for a wild ride with Health Care Reform. First on the list is the requirement that employers report the cost of coverage under an employer-sponsored group health plan on the employee’s Form W-2, starting with the 2012 Form W-2. We’re here to help you with answers to some important questions.
Q. I’ve never had to report health coverage on a Form W-2, did the tax
rules change?
A. The tax rules haven’t changed (well, maybe a little, but that’s for another day), but the Form W-2 reporting requirements have. Starting with the 2012 Form W-2 (issued in January 2013), employers must report the total cost of any employer-sponsored health coverage on the Form W-2 for any employee who was covered under that health coverage at any time during the calendar year.
Q. Do all employers have to comply?
A. Yes, all employers who provide “applicable employer-sponsored coverage” under a group health plan are subject to this reporting requirement. This includes for-profit businesses, tax-exempt organizations, and federal, state, and local governments. Military plans and federally recognized Indian tribal governments are not subject to this requirement however. And, for the time being, certain “small” employers are exempt (discussed below). Any employer that is exempt from the Form W-2 reporting requirement may voluntarily report if it so desires.
Q. What is “applicable employer-sponsored coverage?”
A. The IRS has published a very helpful chart that lists the most common types of health coverage that employers provide that shows whether reporting is required, not required, or optional. If the chart indicates “Do Not Report,” that means that the coverage should not be reported. If the chart indicates “Optional,” that means that the coverage may be reported but is not required to be.
Form W-2 Reporting of Employer-Sponsored Health Coverage
Coverage Type
Form W-2, Box 12, Code DD
Report
Do Not Report
Optional
Major medical
X
Dental or vision plan not integrated into another medical or health plan
X
Dental or vision plan which gives the choice of declining or electing and paying an additional premium
X
Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts
X
Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits
X
Health Reimbursement Arrangement (HRA) contributions
X
Health Savings Arrangement (HSA) contributions (employer or employee)
X
Archer Medical Savings Account (Archer MSA) contributions (employer or employee)
X
Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis
X
Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer
X
Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage
Required if employer charges a COBRA premium
Optional if employer does not charge a COBRA premium
On-site medical clinics providing applicable employer-sponsored healthcare coverage
Required if employer charges a COBRA premium
Optional if employer does not charge a COBRA premium
Wellness programs providing applicable employer-sponsored healthcare coverage
Required if employer charges a COBRA premium
Optional if employer does not charge a COBRA premium
Multi-employer plans
X
Domestic partner coverage included in gross income
X
Self-funded plans not subject to Federal COBRA
X
Accident or disability income
X
Long-term care
X
Liability insurance
X
Supplemental liability insurance
X
Workers’ compensation
X
Automobile medical payment insurance
X
Credit-only insurance
X
Excess reimbursement to highly compensated individual, included in gross income
X
Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income
X
Q. I only have ten employees. Is this really something I have to worry
about?
A. Fortunately for “small” employers, the IRS has granted a temporary exemption from this reporting requirement. Any employer that is required to file fewer than 250 Forms W-2 for the prior calendar year does not have to report coverage on employees’ Forms W-2. For this purpose, related employers do not have to be aggregated. So, if an employer filed fewer than 250 Forms W-2 for 2011, that employer is exempt for 2012. This temporary exemption will continue until the IRS publishes guidance otherwise, and the IRS has already stated that any change will be implemented with at least six months’ advance notice.
Q. Where does an employer put this
information on the W-2?
A. The value of the coverage is reported in Box 12 of the Form W-2, with Code DD.
Q. I’m a “large” employer and so it
looks like I have to comply. What am I
supposed to report on the Form W-2?
A. What is reported on the Form W-2 is the total value of all “applicable employer-sponsored coverage” for the relevant calendar year. This includes the portion of the coverage that is paid for by the employer, plus the portion that is paid for by the employee (whether pre-tax or after-tax). However, if the entire amount of the cost is paid for by the employee with after-tax dollars, then nothing is reported with respect to that coverage. If an employer is reporting coverage under a health flexible spending account, the employee’s pre-tax contributions should not be included, but the employer’s contributions should be included. For insured plans, the premium charged by the insurer should be used as the value of the coverage. For self-insured group health plans, the COBRA premium should be used.
For example, if the total premiums for the health coverage that the employee had during the calendar year was $12,000, plus the employer contributed $1,200 to the employee’s flexible spending account, the value reported on the employee’s Form W-2 would be $13,200.
Q. If an employee switched coverage during the year, what coverage do I report?
A. The value of the actual coverage provided to each employee must be reported on that employee’s Form W-2. So, if the employee switched coverage during the year, the aggregate coverage to be reported for the year would be the sum of the value of the coverage provided throughout the year for all periods of coverage during the year (usually a month).
For example, if the employee had single coverage for six months valued at $800 per month, and family coverage for six months valued at $1,500 per month, the amount reported on the Form W-2 for that year would be $13,800.
Q. Won’t my employees be confused
when they see this information on
their W-2?
A. Confusion among employees (and employers for that matter) is not unexpected. Most employees think of the Form W-2 as statement of taxable wages and compensation, but really it is more than that. The Form W-2 has long been used as a reporting and informational form as well. The inclusion of the value of employer-provided health coverage on Forms W-2 beginning with the 2012 Form W-2 is not intended to be a reporting of taxable coverage, merely a reporting of the value of the coverage that is being provided.
Q. If an employer provides coverage
to former employees, does this mean
that these former employees must now be given a Form W-2?
A. No, if a Form W-2 isn’t otherwise required to be provided, this new requirement does not change that.
More questions? Please contact Mary Ellen Schill, the author of this article, or any of the attorneys in the Employment, Benefits & Labor Relations Practice Group of Ruder Ware for more information about the Form W-2 reporting requirement or any other questions about Health Care Reform compliance.
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