Since 2017 is drawing to a close, here is our annual update of the PPACA requirement that “large” employers must report the total cost of employer-sponsored group health coverage on employees’ W-2s. There are no changes to these requirements from prior years. (W-2’s for 2017 must be furnished to employees by January 31, 2018.)
Additional information is at the IRS website at: https://www.irs.gov/affordable-care-act/form-w-2-reporting-of-employer-sponsored-health-coverage .
The chart at the end of this article is a more detailed list of various types of health coverage and whether reporting them on the W-2 is required, not required or optional.
Employers who were required to file at least 250 W-2’s for 2016 must include the health information on the W-2s for 2017. Future guidance will specify when smaller employers must comply. The IRS website still includes this exclusion for employers who were required to file fewer than 250 W-2s.
The information is reported in Box 12 using Code DD.
The information to report is the total cost of health coverage for the employee and enrolled family members, including domestic partners. Generally, this includes both employer-paid and employee-paid amounts, and it includes both pre-tax and after-tax contributions by the employee. Exception: In the case of a health FSA, the amount reported should not include employee pre-tax (salary reduction) contributions.
Reporting is for informational purposes only; it does not affect the taxability of coverage.
Health Coverage Costs to Report on W-2, Box 12:
- Employer and Employee contributions for major medical and prescription drug coverage
- Employer contribution for health flexible spending accounts (HFSAs) (and payments from HFSAs) that exceed the employee’s pre-tax HFSA contribution for the year.
- However, the employee pre-tax contribution to the HFSA is not reported on the W-2.
- Employee pre-tax contributions for hospital indemnity or specific illness policies (e.g., AFLAC cancer policy).
- However, employee after-tax contributions are not reported on the W-2.
- Employer contribution for major medical and prescription drug coverage for employee’s domestic partner, even if the domestic partner is not the employee’s Tax Code dependent. Amounts that are included in the employee’s gross income must also be reported in Box 12.
- Cost of Employee Assistance Plan (EAP), wellness program and onsite medical clinic, only if they provide “healthcare” coverage and the employer charges a COBRA premium for continued coverage.
Health Coverage Costs NOT to Report on W-2, Box 12:
- Dental or vision coverage that gives the choice of declining, or electing and paying an additional premium (but employer can choose to report)
- Dental or vision that is not integrated with a major medical plan (but employer can choose to report)
- Employee pre-tax contributions to a health flexible spending account (HFSA)
- Health Reimbursement Account (HRA) contributions (but employer can choose to report)
- Health Savings Account (HSA) contributions by the employer or employee
- Hospital indemnity or specific illness policies (e.g., AFLAC cancer policy) paid by the employee on an after-tax basis. (But this is included if paid pre-tax.)
This reporting requirement applies to all types of employers who sponsor group health plans: for-profit businesses, tax-exempt organizations, and federal, state and local government entities. NOT required to report are plans maintained primarily for members of the military and their families, and plans for federally recognized Indian tribal governments.
The 250 W-2s count includes W-2s for all employees, whether full-time, part-time, seasonal or temporary employees.
Controlled groups and affiliated service groups do not need to apply any entity aggregation rules for related employers. That means if two companies are under common control they would not be subject to this reporting requirement if each filed fewer than 250 W-2s for the preceding calendar year, even if the combined total was more than 250.
An employer who has union employees covered under a multi-employer union plan must count these union employees in determining if the employer issued at least 250 W-2s; however, the employer is not required to report the cost of health care provided through the multi-employer union plan.
An employer is not required to issue a W-2 solely to report the value of health coverage for retirees or other former employees to whom the employer would not otherwise provide a Form W-2.
Note on Dependent Care FSAs: Reimbursements for eligible dependent care expenses are reported in Box 10 of the W-2. They are NOT reported in Box 12 with health care costs.
Chart of Various Coverage Types and what must be Reported on Form W-2
The chart below was provided by the IRS and clarifies what types of coverage must be reported, need not be reported, and those for which reporting is optional. Leavitt added additional detail to several lines under “Coverage Type” in the matrix to clarify covered dependents and integrated dental or vision coverage, and to clarify separate non-ACA reporting rules related to HSAs, MSAs and non-discrimination rules related to highly compensated individuals within self-funded plans.
For example, while contributions to Health Savings Accounts (HSAs) are not reported in Box 12 with Code DD, certain HSA contributions are reported in Box 12 with Code W under a separate rule unrelated to the ACA (see General Instructions for Forms W-2 and W-3). There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees. Please see your tax professional if you have additional questions on what amounts to report.
The IRS version of this chart is found at https://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage . (IRS page last reviewed or updated Dec. 25, 2017)
|Form W-2 Reporting of Employer-Sponsored Health Coverage|
|Coverage Type||Form W-2, Box 12, Code DD|
|Report||Do Not Report||Optional|
|Domestic partner coverage included in gross income||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) (But you might need to report employer HSA contributions in Box 12 using Code W. See W-2 Instructions for details.)||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 (e.g. AFLAC policies)||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|
|Coverage Type||Report||Do Not Report||Optional|
|Governmental plans providing coverage primarily for members of the military and their families||X|
|Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government||X|
|Self-funded plans not subject to Federal COBRA||X|
|Accident or disability income||X|
|Supplemental liability insurance||X|
|Automobile medical payment 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|
|Other Situations||Report||Do Not Report||Optional|
|Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)||X|
|Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year||X|
|Forms W-2 provided by third-party sick-pay provider to employees of other employers||X|