Each year, employers are required to report certain benefits information on Form W-2. One item that often raises questions is the reporting of employer-sponsored health coverage. This requirement is informational only, but accuracy is still important.
What the IRS requires
Under guidance issued by the Internal Revenue Service, most employers must report the cost of employer-sponsored health coverage in Box 12 of Form W-2 using Code DD. This reporting helps employees understand the total cost of their health coverage and supports broader health care transparency efforts under the Affordable Care Act.
It is important to note that the amount reported does not affect an employee’s taxable wages. The reported cost is for information purposes only and does not increase federal, state, or local taxes.
What amount is reported
The amount reported in Box 12 reflects the total cost of health coverage for the year. This includes:
- The portion paid by the employer, and
- The portion paid by the employee through payroll deductions
In other words, the reported amount represents the full annual cost of coverage, not just what the employee paid out of pocket.
Which employers must report
In general, an employer must report the cost of health coverage on Form W-2 unless an exemption applies. The most common exemption is based on employer size.
An employer is exempt from the reporting requirement if it filed fewer than 250 Forms W-2 in the preceding calendar year. This threshold is determined on a controlled group basis, meaning related employers may need to count W-2s together when evaluating eligibility for the exemption.
Employers that meet or exceed the 250-form threshold are required to comply with the reporting rules.
Why this reporting matters
Although the reporting does not impact employee taxes, it is still important to ensure the amount reported is accurate and consistent with plan records. Errors can lead to employee confusion and follow-up questions during tax season.
Taking the time to confirm coverage costs before issuing Forms W-2 helps reduce corrections and reinforces clear communication with employees.
Where to find more information
The IRS provides detailed guidance on Form W-2 health coverage reporting, including examples and frequently asked questions, on its website. Employers with questions about how to calculate or report coverage costs should review that guidance or consult with their benefits or payroll administrator.
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This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.
