The Affordable Care Act (ACA) introduced mandates for employers to report the cost of health care coverage provided under employer-sponsored group health plans. It’s crucial to understand that this reporting, done on Form W-2, is purely for informational purposes. It does not imply that the health coverage is taxable. The employer’s contribution to health coverage remains excluded from an employee’s income and is not subject to taxation. This measure is designed to equip employees with valuable, comparable insights into the cost of their health care benefits.
Employers providing “applicable employer-sponsored coverage” are obligated to comply with this reporting rule. This encompasses businesses, non-profit organizations, and governmental bodies at the federal, state, and local levels – with the exception of plans primarily for military members and their families. Notably, federally recognized Indian tribal governments are exempt from this requirement.
Navigating Transition Relief
Certain employers, coverage types, and specific situations are granted transition relief from the reporting mandate, which began with the 2012 Forms W-2 and initially applied to the 2013 Forms W-2 issued in 2014. This relief has been extended to the 2015 tax year and remains in effect until the IRS issues further directives. It’s important to note that employers generally need to furnish employees with Form W-2 for 2015 by January 2016. Any future guidance that expands these reporting requirements will only be applicable to calendar years starting at least six months after the new guidance is officially published. For a clearer picture of which employers, coverage types, and situations qualify for transition relief, refer to the “Optional Reporting” column in the chart provided below.
How to Report on Form W-2
For employers who are subject to the reporting mandate, the value of health care coverage should be reported in Box 12 of Form W-2, using Code DD to designate the reported amount. It is important to note that there is no summary reporting of these amounts on Form W-3 for all employees.
Generally, the amount reported should encompass both the employer’s contribution and the employee’s contribution. For detailed information, please consult the chart below and the IRS’s Questions and Answers on employer-provided health coverage reporting.
Employers are not obligated to issue Form W-2 solely for reporting health coverage costs for retirees or other employees or former employees if they would not otherwise receive a Form W-2.
The following chart provides a detailed breakdown of coverage types and their respective reporting requirements on Form W-2. Certain items are marked as “optional” due to transition relief as per Notice 2012-9, which restates and clarifies Notice 2011-28. Future IRS guidance may modify these reporting rules, but any changes will not take effect until the tax year commencing at least six months after the issuance of such guidance.
This chart specifically addresses reporting in Box 12, Code DD, and does not alter reporting requirements for these items in other sections of Form W-2. For example, while Health Savings Account (HSA) contributions are not reported in Box 12 with Code DD, certain HSA contributions are reported in Box 12 using Code W, as outlined in the General Instructions for Forms W-2 and W-3.
Form W-2 Reporting of Employer-Sponsored Health Coverage Chart Review
This section provides a detailed review of the chart for Form W-2 reporting of employer-sponsored health coverage. This Affordable Care Act Chart Review Program is designed to help employers easily understand their reporting responsibilities.
| Coverage type | Form W-2, Box 12, Code DD |
|---|---|
| Report | Do not report |
| Major medical | X |
| 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 | X |
| Health Reimbursement Arrangement (HRA) contributions | |
| Health Savings Arrangement (HSA) contributions (employer or employee) | |
| Archer Medical Savings Account (Archer MSA) contributions (employer or employee) | |
| Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis | |
| Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer | X |
| Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage | Required if employer charges a COBRA premium |
| On-site medical clinics providing applicable employer-sponsored healthcare coverage | Required if employer charges a COBRA premium |
| Wellness programs providing applicable employer-sponsored healthcare coverage | Required if employer charges a COBRA premium |
| Multi-employer plans | |
| Domestic partner coverage included in gross income | X |
| 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 | |
| Long-term care | |
| Liability insurance | |
| Supplemental liability insurance | |
| Workers’ compensation | |
| Automobile medical payment insurance | |
| Credit-only 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) | 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 |
This chart, developed in collaboration with the IRS’s Information Reporting Program Advisory Committee (IRPAC), serves as a crucial tool for employers. IRPAC, composed of industry representatives involved in information returns like Form W-2, collaborates with the IRS to streamline the information reporting process.
In conclusion, understanding the Form W-2 reporting requirements for employer-sponsored health coverage under the Affordable Care Act is essential for compliance. This affordable care act chart review program, as illustrated by the provided chart, offers a clear and concise guide for employers to navigate these regulations, ensuring accurate and timely reporting while remaining within the guidelines set forth by the IRS. Remember, this reporting is informational and does not affect the taxability of employer-provided health coverage.
