09 Jan Understanding W-2 Reporting under the ACA
From our partner, UBA Benefits, let’s take a look at W-2 Reporting under the ACA (Affordable Care Act) and how to better understand it:
The ACA requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable.
Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). Federally recognized Indian tribal governments are not subject to this requirement.
Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of Form W-2, with Code DD to identify the amount. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.
In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart below from the IRS’ webpage and its questions and answers for more information.
The chart below illustrates the types of coverage that employers must report on Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9 (restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date of issuance of such guidance.
| Form W-2, Box 12, Code DD | |||
| Coverage Type | Report | Do Not Report |
Optional |
| Major medical | 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 | ||
| Health flexible spending arrangement (FSA) funded solely by salary-reduction amounts | X | ||
| 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 | X | ||
| Health savings account (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 | ||
| 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 | Optional if employer does not charge a COBRA premium | |
| On-site medical clinics providing applicable employer-sponsored healthcare coverage | Required if employer charges a COBRA premium | Optional if employer does not charge a COBRA premium | |
| Wellness programs providing applicable employer-sponsored healthcare coverage | Required if employer charges a COBRA premium | Optional if employer does not charge a COBRA premium | |
| Multi-employer plans | X | ||
| Domestic partner coverage included in gross income | 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 | ||
| Self-funded plans not subject to federal COBRA | 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 | ||
| 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 the year | X | ||
| Forms W-2 provided by third-party sick-pay provider to employees of other employers | X | ||
Source:
Capilla D. (21 December 2017). “Understanding W-2 Reporting under the ACA” [web blog post]. Retrieved from address https://blog.ubabenefits.com/understanding-w-2-reporting-under-the-aca