Form W-2 Costs of Employer Group Health Coverage

The Patient Protection and Affordable Care Act of 2010 (PPACA) requires employers to report the aggregate cost of “applicable employer sponsored group health care coverage” on employees’ Forms W-2 in Box 12 using code DD. On October 12, 2010, the Internal Revenue Service (IRS) issued Notice 2010-69 to waive the reporting requirements for Forms W-2 issued for 2011. On March 29, 2011, the IRS issued Notice 2011-28 to provide guidance on reporting requirements.

On January 3, 2012, the IRS issued Notice 2012-9, to let employers know they will be required to comply with the reporting requirements beginning in 2012. These are Forms W-2 to be provided in to employees in 2013.

Notice 2012-9 states if future guidance is issued on the reporting requirements such as the categories of employers, or types of coverage, the guidance will apply going forward only and not apply to any calendar year beginning within six months after the date that the guidance is issued.

The costs of employer group health coverage reporting is for employee informational purposes only, and will not cause any excludable coverage to become taxable. The reporting may have indirect tax implications. For instance, the reporting may provide a basis for the IRS to monitor whether an employer is providing affordable coverage to employees. Many employers no longer provide 100% healthcare coverage to employees. In most instances, employees are expected to not only contribute toward the premium from their paychecks, but also pay a deductible to the medical provider before any employer payments are made towards medical care.

The IRS may possibly use the information on Form W-2 to evaluate whether an employer is appropriately including the value of discriminatory health coverage in employees’ income. All employers that provide reportable coverage during a calendar year are subject to the Form W-2 reporting requirement. Federal, state and local governmental entities, churches and other religious organizations and employers exempt from the COBRA continuation coverage rules may also be subject to the reporting. An employer is not subject to the reporting requirements for a calendar year if the employer was required to file less than 250 Forms W-2 for the calendar year before.

An employer is required to report the cost of reportable coverage only if the employer is otherwise required to issue a Form W-2. For instance, if continuation coverage is provided to a former employee, but the employer provides no compensation for which a Form W-2 is required, the employer is not required to issue a Form W-2 to reflect the cost of reportable coverage.

Reportable coverage is coverage under a group health plan made available to an employee by an employer and is excludable from income under Section 106 of the Internal Revenue Code. Reporting is required no matter if whether the employer or employee pays for the cost of coverage. A group health plan means a plan maintained or contributed to by an employer to provide health care to employees, former employees, and eligible employee or former employee family members.

Consult an experienced New York tax attorney for answers on complex business or individual tax questions.