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ObamaCare Decision Retains New Form W-2 Reporting Requirement for Health Coverage

By Marcia Richards Suelzer | July 19, 2012

Under the Affordable Care Act, which was recently upheld by the U.S. Supreme Court, employers who provide heath insurance to their employees must report the cost of coverage on their employees' Forms W-2, Wage and Tax Statement. However, when you must begin reporting depends upon how many Forms W-2 you issue.

Small Employers Exempt from Reporting for 2012 Forms W-2

Businesses that provided 250 or more Forms W-2 in 2011 will be required to comply with the new reporting requirement starting with the 2012 Form W-2. However, smaller businesses will not have to report for 2012, although they have the option of providing the information if they wish to do so. So, if you provided fewer than 250 Forms W-2 during 2011, you do not need to comply with this reporting requirement for 2012 W-2 Forms (which are due to the employees by January 31, 2013).

Tip

It appears that small businesses will not have to report this information on the 2013 Form W-2 either. The IRS has stated that the reporting requirement will apply only to calendar years that begin six months after the IRS issues additional guidance for employers. That means that guidance would have had to be issued before July 1, 2012 in order for it to apply for 2013 Forms W-2.

How to Report Health Care Coverage on Form W-2

If you are required to report (or if you choose to do so), the amount reported generally should include both the amount that you paid during 2012 and the amount the employee paid—thus giving the employees insight into the true cost of this benefit. The amount is reported in Box 12 of the Form W-2. Code DD is used to identify the amount. (This is informational for each individual employee, so you do not have to aggregate all the amounts onto your Form W-3, Transmittal of Wage and Tax Statements).

Work Smart

Many people continue to be concerned that this new reporting requirement will increase the employee's tax liability. This is not the case.

The amount reported does not affect tax liability. The amount you contribute to health coverage that was properly excludable from your employee's income continues to be excluded from an employee's income. It is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.

To forestall questions by your employees, if you will be including this information on their Forms W-2, you should reiterate that this does not change their tax liability. You can include this information with their Form W-2 or in a separate communication in early January 2013.

The chart below illustrates the types of coverage that employers must report on the Form W-2, if they are required to report or elect to do so. (In addition to the small-employer exception, the IRS provided relief for reporting of certain types of benefits.Those coverage types described as optional do not have to be reported for 2012.) Bear in mind, this new requirement has no impact on requirements to report certain items elsewhere. For example, while contributions to Health Savings Arrangements (HSA) are not to be reported in Box 12, Code DD, certain HSA contributions are reported in Box 12, Code W.

Form W-2 Reporting of Employer-Sponsored Health Coverage
For Employers Required to Report

Coverage Type

Form W-2, Box 12, Code DD

Report

Do Not Report

Optional

Major medical

X

 

 

Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X

 

 

Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer

X

 

 

Domestic partner coverage included in gross income

X

 

 

Employee Assistance Plan (EAP) providing applicable employer-sponsored health care 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 health care coverage

Required if employer charges a COBRA premium

 

Optional if employer does not charge a COBRA premium

Wellness programs providing applicable employer-sponsored health care coverage

Required if employer charges a COBRA premium

 

Optional if employer does not charge a COBRA premium

Health Reimbursement Arrangement (HRA) contributions

 

 

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

Multi-employer plans

 

 

X

Self-funded plans not subject to Federal COBRA

 

 

X

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

Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts

 

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

 

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

 

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

 

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