Blog - Health Premiums and the W-2

Health Premiums and the W-2

Lately, there has been lots of discussion and confusion about the rules surrounding employer-sponsored health premiums and the W-2 (a new requirement stemming from The Affordable Care Act). Let’s break it down to the most commonly misunderstood elements of the law as it applies to this topic.

Lately, there has been lots of discussion and confusion about the rules surrounding employer-sponsored health premiums and the W-2 (a new requirement stemming from The Affordable Care Act).  Let’s break it down to the most commonly misunderstood elements of the law as it applies to this topic.

  • Since this amount is now on the W-2, does that mean it’s taxable income for the employee?  No.  The purpose of the requirement is to provide employees with this information, not to add taxable income for tax purposes.
  • Do all employers have to provide this information?  No.  If the employer had less than 250 W-2s in the previous year, they are exempt from the new regulation in 2012.  However, if they choose, they may report the information on the W-2.
  • Do employers have to report premiums for all insurance products offered to their employees?  No.  Only the cost of employer-sponsored group health coverage has to be included.  Standalone dental and vision plans, health reimbursement arrangements (HRAs), employee assistance programs, etc. do not have to be included. 
  • What about employee contributions to Flexible Spending Accounts:  do they have to be reported?  No.  However, employer contributions to a health FSA do need to be reported.
  • Does this amount show in Box 1 of the W-2?  No.  The amount will show only in box 12 of the W-2 and will have the code “DD” in front of it.  This box is informational only and does not get added in any other boxes on the W-2.
  • Do employers only report the employer-paid portion of the premium?  No.  The amount reported should include the full amount of the premium, whether it was paid by the employer or the employee.  For example, if the total premium for the year was $1200 and the employer paid 50% and the employee paid 50%, the amount on the W-2 would need to show the full $1200.  Exception:  you do not have to include employees’ contributions to the flexible spending account—only report amounts if the employer contributed them on behalf of the employee.

For the IRS document that fully addresses Employer-Provided Health Coverage Reporting Requirements, please visit: http://www.irs.gov/uac/Employer-Provided-Health-Coverage-Informational-Reporting-Requirements:-Questions-and-Answers.  You’ll find detailed documentation there, along with links to the original IRS Notices that were issued.

Stay tuned for more posts on the Affordable Care Act and its impact on employers of all sizes.  There’s much more to come in 2013—it’s going to be a year of changes!

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