The Affordable Care Act (ACA) introduced many provisions affecting employers, one of which is the requirement to report the cost of employer-sponsored health coverage on employees’ Form W-2. This requirement applies to employers who issue at least 250 W-2s in a calendar year. Reporting this information is intended to provide greater transparency about healthcare costs, but it does not affect employees’ tax liability. Here’s what employers need to know about this reporting obligation.
What Must Be Reported?
Employers must include the total cost of employer-sponsored health coverage in Box 12 of Form W-2 using code DD. This amount represents the combined total of:
Key Points to Remember:
Who Is Required to Comply?
The requirement applies to employers that issued 250 or more W-2s in the previous calendar year. This includes:
Purpose of the Requirement
The ACA implemented this reporting rule to:
Important Note: This is not a taxable benefit. The information is purely informational and does not impact the employee’s gross income or tax obligations.
How to Report the Cost of Coverage
This total represents the cost of coverage as invoiced by the insurance carrier.
Common Questions
Does this impact employee taxes? No, the reported amount is informational only and does not increase the employee's taxable income.
What if the coverage changes during the year? The reported amount should reflect the actual cost of coverage for the calendar year, including any mid-year changes to the plan.
What if an employee waives health coverage? No amount is reported in Box 12 for employees who decline employer-sponsored health coverage.
Why It Matters
While this ACA requirement adds another layer to employer reporting obligations, it ultimately provides employees with a clearer picture of the value of their health benefits. Employers should take steps to ensure compliance, as failure to report this information accurately can result in penalties.
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