Jane Dotson
Large employers who issue 250 or more W-2s for the calendar year 2014 (to be distributed to employees in January 2015) are required to report the value of employer-sponsored health insurance. This is generally coverage under a group health plan that an employer makes available to an employee that is not taxable to the employee. The cost must be reported on a calendar year basis (January 1 through December 31), and the applicable cost of coverage includes both the employer and employee contributions.
| Characteristics | Values |
|---|---|
| Reporting requirements | Applicable coverage includes major medical coverage (fully insured or self-funded), prescription coverage, hospital or fixed indemnity coverage if pre-taxed, and employer contributions to a Health Flexible Spending Arrangement (HFSA) |
| Exemptions | Stand-alone dental and vision plans, employee pre-tax contributions to an HFSA, disability coverage, long-term care coverage, and Employee Assistance Programs (EAPs), wellness programs, and on-site medical clinics offered to qualified COBRA beneficiaries at no charge |
| Large employers | Employers issuing 250 or more W-2s for the 2014 calendar year are required to report the value of employer-sponsored health insurance. This includes private companies, churches, tax-exempt organizations, and federal, state, and local government entities. |
| Small employers | Reporting is optional for small employers with fewer than 250 W-2s. They qualify for transition relief until new IRS guidance is issued. |
| Reporting period | The cost must be reported on a calendar year basis (January 1 – December 31), regardless of the group plan year or renewal date. |
| Applicable cost | The entire plan cost, including both employer and employee contributions, regardless of whether the employee paid pre-tax or after-tax, and whether the plan is self-funded or insured. |
| COBRA participants | Employers do not have to report the cost of an EAP, wellness program, or on-site medical clinic if they do not charge a premium for coverage to COBRA participants. |
| Form 1095-C | This form is provided to each employee and reports their personal information, coverage details, and cost-sharing. It can be provided by the insurance company or the employer. |
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What You'll Learn
Reporting employer-sponsored health insurance
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. This requirement applies to employers who provide "applicable employer-sponsored coverage" under a group health plan. This includes private companies, churches, tax-exempt organizations, and federal, state, and local government entities. However, it does not include plans maintained primarily for military members and their families.
Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of the Form W-2, using Code DD to identify the amount. The amount reported should include both the portion paid by the employer and the portion paid by the employee. It is important to note that reporting the cost of health care coverage on the Form W-2 does not make the coverage taxable. The value of the employer's excludable contribution to health coverage remains excludable from an employee's income and is not subject to taxation. This reporting is for informational purposes only and will provide employees with useful and comparable information about the cost of their health care coverage.
Large employers who issue 250 or more W-2s for the 2014 calendar year (to be distributed in January 2015) are required to report the value of employer-sponsored health insurance. However, small employers or those issuing fewer than 250 W-2s are not mandated to do so. Small employers have qualified for transition relief from this reporting requirement from the 2012 tax year until the IRS publishes new guidance.
Applicable coverage includes major medical coverage (fully insured or self-funded), prescription coverage, hospital or fixed indemnity coverage if pre-taxed, and employer contributions to a Health Flexible Spending Arrangement (HFSA). Stand-alone dental and vision plans, employee pre-tax contributions to an HFSA, disability coverage, long-term care coverage, and Employee Assistance Programs (EAPs) are exempt from the reported amount.
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What is considered applicable employer-sponsored coverage
Applicable employer-sponsored coverage refers to health insurance coverage provided to employees (and their dependents) by their employer. This type of coverage is extremely common, with nearly half of the American population having employer-sponsored health plans. Applicable employer-sponsored coverage can include major medical coverage, prescription coverage, hospital or fixed indemnity coverage, and employer contributions to a Health Flexible Spending Arrangement (HFSA). It's important to note that stand-alone dental and vision plans, employee pre-tax contributions to an HFSA, disability coverage, long-term care coverage, and Employee Assistance Programs (EAPs) are typically exempt from the reported amount.
Large employers with 50 or more full-time employees or equivalents are generally required to provide health coverage for their workers. These employers, known as Applicable Large Employers (ALEs), may face penalties if they fail to sponsor the required coverage. Under the Affordable Care Act (ACA) or Obamacare, most Americans must maintain a basic level of health insurance, referred to as Minimum Essential Coverage (MEC). The ACA also stipulates that employers cannot impose a waiting period of more than 90 days before new employees become eligible for health benefits.
When it comes to reporting employer-sponsored coverage on W-2 forms, large employers who issue 250 or more W-2s are required to report the value of the health care coverage. This reporting is optional for small employers issuing fewer than 250 W-2s. The reported value of the health care coverage should be included in Box 12 of the W-2 form, identified with Code DD. It's important to note that health benefits are not taxed, but the Internal Revenue Service (IRS) requires this information on the W-2 form to help employees understand the value of their coverage.
Employers who provide group health plans, including small and large groups, must guarantee coverage for all enrollees who qualify through their employment. Additionally, employers have the option to self-insure, which means they pay employees' medical claims directly instead of purchasing coverage from an insurance company. Employers can also offer an Individual Coverage Health Reimbursement Arrangement (ICHRA), where they reimburse employees for some or all of the costs of obtaining individual market coverage.
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What costs to report
The Affordable Care Act (ACA) requires employers to report the aggregate cost of "applicable employer-sponsored coverage" on an employee's Form W-2. This requirement is informational only and has no tax consequences. It is meant to provide employees with useful and comparable information on the cost of their healthcare coverage.
The "applicable cost" of coverage includes both the employer and employee contributions, regardless of whether the employee paid pre-tax or after-tax, and whether the plan is self-funded or insured, grandfathered or non-grandfathered. Employers must report the cost of major medical coverage (fully insured or self-funded), prescription coverage, hospital or fixed indemnity coverage if pre-taxed, and contributions to a Health Flexible Spending Arrangement (HFSA).
However, there are certain benefits that are specifically excluded from the reporting requirement. These include stand-alone dental and vision plans, employee pre-tax contributions to an HFSA, disability coverage, long-term care coverage, Employee Assistance Programs (EAPs), wellness programs, and on-site medical clinics when offered to qualified COBRA beneficiaries at no charge. Additionally, employers are not required to report Health Reimbursement Arrangements (HRAs), coverage for specified diseases or illnesses, or contributions to Health Savings Accounts (HSAs).
It is important to note that the reporting requirements may vary for small employers or those with specific types of coverage, and there are certain situations where transition relief from reporting is provided. For example, employers who contribute to a multi-employer plan are generally not required to report the cost of coverage unless additional benefits are provided outside of the multi-employer plan.
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Deadlines for reporting
The reporting is optional for small employers or those who issue fewer than 250 W-2s. If you are a small employer, you have qualified for transition relief from this reporting requirement from the tax year 2012 until the IRS issues new guidance. However, it's important to note that this relief is only applicable if certain conditions are met, and the IRS may change the requirements at any time, so it's always a good idea to check for the most up-to-date information.
The reporting deadline for large employers is a hard deadline, and failure to comply may result in penalties. The IRS takes reporting requirements very seriously, and employers who do not meet the deadline may be subject to fines or other consequences. Therefore, it is crucial for large employers to be aware of the deadline and ensure that they file their W-2s on time.
To ensure compliance, employers should maintain accurate records of their employees' health insurance coverage and contributions throughout the year. This includes keeping track of any changes in coverage, such as adding or removing dependents, and updating any pre-tax or post-tax contributions. By staying organized and proactive, employers can avoid last-minute rushes and ensure that they meet the reporting deadline without issue.
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Exemptions to reporting
The following are exempt from reporting medical insurance on W-2:
Small employers
Small employers or those issuing fewer than 250 W-2s are not required to report the value of employer-sponsored health insurance. The IRS's small employer exception will continue until new guidance is published, which would apply only to calendar years starting at least six months after the change.
Stand-alone plans
Stand-alone dental and vision plans are exempt from the reported amount.
Retirees and former employees
You are not required to report this information for retirees, former employees, or other employees who would not otherwise be provided a W-2.
Military plans
While employers that provide "applicable employer-sponsored coverage" under a group health plan are generally subject to the reporting requirement, this does not apply to plans maintained primarily for members of the military and their families.
Tribal governments
Federally recognized Indian tribal governments are not subject to the reporting requirement.
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Frequently asked questions
Large employers who issue 250 or more W-2s for the calendar year are required to report the value of employer-sponsored health insurance.
Form W-2 is generally due by January 31 for the previous calendar year.
The report includes the "applicable cost" of coverage, including both employer and employee contributions, regardless of whether the contributions were made pre-tax or post-tax.
Certain benefits are specifically excluded from the reporting requirement, such as Health Reimbursement Arrangements (HRAs), wellness programs, and standalone dental and vision plans.
The value of the health care coverage is reported in Box 12 of the Form W-2, using Code DD to identify the amount.
