The Affordable Care Act (“ACA”) requires employers that provide “applicable employer-sponsored coverage” under a group health plan to report the cost of coverage under its plan(s). The reporting is for informational purposes only and is intended to inform employees about the cost of their health care coverage.
Employer Action Items
- Employers that file 250 or more Form W-2s should follow the ACA’s W-2 reporting requirement. They should make sure that they can identify the applicable employer-sponsored coverage provided to each employee and calculate the aggregate cost of that coverage.
- Employers should be prepared to answer employees’ questions about the information shown on their W-2, including the fact that it is the total cost of coverage that is reported (i.e., both employer and employee contributions) and that the inclusion of the information in Box 12 of the form is for information purposes only (i.e., amounts shown are not taxable).
- During this holiday season, remember that gift cards to employees are always taxable and should be reported on the employee’s Form W-2 as taxable income.
Summary
The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage, and Tax Statement, in Box 12, using Code DD. Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. The Internal Revenue Service (“IRS”) has clarified that this reporting is for informational purposes only.
Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state, and local government entities (except for plans maintained primarily for members of the military and their families). However, federally recognized Indian tribal governments are not subject to this requirement.
This requirement is optional for small employers (those that file fewer than 250 Form W-2s) unless and until the IRS issues further guidance. Large employers (those that file 250 or more Form W-2s) have been required to comply with this requirement since the 2012 tax year.
Additionally, an employer is not required to issue a Form W-2 solely to report the value of health care coverage for retirees, other employees, or former employees to whom the employer would not otherwise provide a Form W-2.
In addition to the group health coverage reporting discussed above, an employer must report the amount of contributions to an employee’s health savings account (“HSA”) in Box 12 of Form W-2 using Code W. These amounts are not included in the total amount for the cost of coverage under Code DD discussed above. To the extent such contributions are not excludable from the employee’s income, such amounts would need to be reported in other boxes on the Form, which is beyond the scope of this article.
Last, an employer must report the total dependent care benefits it paid or incurred to an employee or on their behalf (regardless of any employee forfeitures) in Box 10 of Form W-2.
The IRS has a chart on its informational webpage demonstrating the types of coverage that employers must report in Box 12 (with Code DD) on the Form W-2 and those that are currently optional.
Additional Resources
- IRS Form W-2 Reporting of Employer-sponsored Health Coverage
- Employer-Provided Health Coverage Informational Reporting Requirements IRS Q&As
- 2024 General Instructions for Form W-2
For more information
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