Reporting the Cost of Health Coverage on Form W-2

4/5/2011

The Internal Revenue Service issued Notice 2011-28 that provides interim guidance regarding the informational reporting of an employee's employer-sponsored health plan coverage on Form W-2.  The informational reporting requirement was added to the internal revenue code by the Affordable Care Act last year.  Employers are required to comply with the informational reporting requirement beginning with the 2012 Form W-2 (forms required for the 2012 calendar year that employers must furnish to employees in January 2013).  

The Notice confirms that employers must only report the aggregate cost to an individual for whom the employer is otherwise required to issue a Form W-2.  An employer is not required to send a Form W-2 to individuals who are enrolled in employer-sponsored health coverage but who do not otherwise receive a Form W-2.  This may include retirees, surviving spouses and dependent, COBRA participants and other terminated employees with continuation coverage.   If a W-2 is required, then the employer must report the aggregate cost of the employer-provided coverage for that year.

Coverage that is reported includes employer-sponsored coverage under any group health plan that is excludable from the employee's gross income or would be excludable if it were employer coverage.  This is a broad definition that includes many types of employer coverage such as major medical coverage (both self-insured and insured), mini-med coverage, on-site medical clinic coverage and employer flex credits to a health flexible spending arrangement (FSA). 

How and What to Report

The aggregate cost of the applicable employer-sponsored coverage is reported in Box 12 on the W-2, using Code DD.  The total cost of all employer coverage are added together and reported as one amount.  The reported aggregate cost includes:

• Both the employee and employer portions of the employer coverage, regardless of whether the employee pays for the coverage on a pre-tax or after-tax basis.
• The cost of employer coverage for all individuals covered by the group health plan because of the employee (e.g. spouse, domestic partner, children and other individuals).
• The cost of employer coverage that is imputed as additional wages for individuals who are not federal income tax dependents. 

Small Employer Exception

Until further guidance is issued, an employer is not required to comply with the informational reporting requirement for a calendar year if the employer was required to file less than 250 Forms W-2 for the preceding calendar year.  Exceptions also exist for self-insured plans that are not subject to federal COBRA continuation coverage laws and plans maintained primarily for military members and their families.

Coverage Exceptions

The following are NOT required to be reported as employer coverage:

• Any amount contributed to a health savings account (HSA) or Archer MSA
• Any salary reduction amount contributed to a health FSA by an employee (however, employer flex credits to a health FSA are required to be reported)
• Health reimbursement arrangement (HRA) coverage
• HIPAA-excepted insurance for a specified disease or illness, but only if it is paid on an after-tax basis
• Other HIPAA-excepted coverage, such as AD&D and disability (however, on-site medical clinic coverage is reportable)
• Long-term care coverage or insurance
• Stand alone dental and vision (self-insured and insured)

We are watching this closely and will update you on any changes.  Please contact Discovery Benefits at 866-451-3399 if you have any questions. 

Return to Pressroom