Quick Summary of W-2 Reporting of Employer-Sponsored Health Coverage
|WHAT||Certain employers must report employer-sponsored health coverage on 2016 W-2s (distributed by January 31, 20176). Do not report these totals on Form W-3.|
|WHEN||Since January 2012, employers should be capturing the required information in their payroll systems annually, so it can be reported accurately on the W-2s that must be distributed by January 31 of the succeeding year.|
|WHY||To inform employees of the value of their health coverage, does not affect taxability|
|WHO||Employers who filed at least 250 W-2’s in one tax year must include the health information on the W-2s in the next tax year. Future guidance will specify when smaller employers must comply. Applies whether employer’s plan is grandfathered or non-grandfathered.|
|CITES||–Form W-2 Reporting of Employer-Sponsored Health Coverage, https://www.irs.gov/Affordable-Care-Act/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage
–Q&As on W-2 Health Coverage Reporting: https://www.irs.gov/uac/employer-provided-health-coverage-informational-reporting-requirements-questions-and-answers . Also includes links to Notice 2012-09, Notice 2011-28, and IR 2011-31.
Since 2016 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. (W-2’s for 2016 must be issued to employees and filed with the Social Security Administration (SSA) by January 31, 2017.) There are no changes to the law or regulations since last year.
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 lists all coverages that must or are not required to be reported on the W-2.
What Information is Reported
Generally, the amount reported should include both the portion paid by the employer and the portion paid by the employee, and should include employee pre-tax and after-tax contributions. Exception: In the case of a health FSA, the amount reported should not include employee pre-tax (salary reduction) contributions.
Include the following amounts in Box 12, and use Code DD:
- 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, 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.
This reporting requirement applies to employers who issued at least 250 W-2s the prior year (i.e., in 2016), and it applies to both grandfathered and non-grandfathered plans, for-profit businesses, tax-exempt organizations, and federal, state and local government entities (but not for plans maintained primarily for members of the military and their families, and not for federally recognized Indian tribal governments). The 250 W-2s include those for all employees, whether the employer classified them as full-time, part-time, seasonal or temporary employees. The 2016 W-2s must be sent to employees by January 31, 2017. Reporting is for informational purposes only; it does not affect the taxability of the coverage.
Who Does Not Report
Small employers do not have to report yet. “Small” means the employer filed fewer than 250 W-2s in the prior tax year. The effective date for smaller employers is still postponed, and it will not be effective until the first tax year beginning at least six months after future guidance is issued on this provision. (No indication as to when the IRS might issue guidance.)
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 Forms W-2 for the preceding calendar year, even if the combined total was more than 250.
Union employees in a multi-employer union plan count in determining if an employer issued at least 250 W-2s in the prior calendar year, BUT the employer is not required to report the cost of health care that was provided through the multi-employer union plan.
An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or 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.
What is not Reported
Generally, the following are NOT included in the amount reported in 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.)
What if the Reporting Requirements Change in the Future?
The IRS website provides that the transition relief from the reporting requirement (i.e., that small employers need not report, and that certain types of coverage need not be reported yet) will continue to apply for future calendar years until the IRS publishes guidance giving at least six months advance notice of any change to the transition relief. However, reporting by these employers and for these types of coverages may be made on a voluntary basis, even while the transition relief applies and reporting is not required.
What if Prior Year W-2s Should have Included Health Information and Did Not?
The IRS website provides that employers who should have included health insurance amounts on prior year’s W-2s but did not should review Notice 2012-9 to see if they qualify for transition relief. If they do not, such employers must file amended returns – Form W-2c’s—if the original Form W-2 failed to include the required information. Code section 6051(a) requires this information to be reported on Form W-2. The IRS website provides that employers who should have included health insurance amounts on prior year’s W-2s but did not should review Notice 2012-9.
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 Nov. 2, 2016)
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||✔|
|Dental or vision plan not integrated into another medical or health plan||✔|
|Dental or vision plan which gives the choice of declining or electing and paying an additional premium||✔|
|Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts||✔|
|Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits||✔|
|Health Reimbursement Arrangement (HRA) contributions||✔|
|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.)||✔|
|Archer Medical Savings Account (Archer MSA) contributions (employer or employee)||✔|
|Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis (e.g. AFLAC policies)||✔|
|Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer||✔|
|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||✔|
|Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government||✔|
|Self-funded plans not subject to Federal COBRA||✔|
|Accident or disability income||✔|
|Supplemental liability insurance||✔|
|Automobile medical payment insurance||✔|
|Excess reimbursement to highly compensated individual, included in gross income||✔|
|Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income||✔|
|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)||✔|
|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||✔|
|Forms W-2 provided by third-party sick-pay provider to employees of other employers||✔|
Suggestions on where to Find the Data You Need to Report
- Insured plan sponsors: Review your 2014 bills from your carrier, look at payroll data
- Self-insured plan sponsors: contact your COBRA vendor for a COBRA rate
- Review each employee’s 2016 payroll data (for pre-tax contributions to hospital indemnity or specific illness plans, and for imputed income for domestic partner coverage)