Need Help Understanding Employee Healthcare Benefit Reporting on W-2s?

Joe Popp | November 22nd, 2011

The IRS recently held a webinar to explain its reporting requirements for healthcare coverage on employees’ W2’s for the 2011 tax year. We’ve provided a summary of the webinar below for those of you who missed it.

Reporting Delayed

Perhaps the biggest emphasis from the webinar is a change in the deadline for reporting this information. Originally, reporting of employee healthcare coverage was to begin on 2011 W-2s issued in January 2012. The IRS has now delayed the reporting to 2012 W-2s issued in January 2013 and made reporting on 2011 W-2s optional. Taxpayers may rely on IRS Notice 2011-28 for guidance should they choose to report this optional information. If employers choose to report the coverage, they will need to use Code DD in Box 12 of Form W-2.

Smaller Employers Exempt – for now

Once the reporting becomes mandatory in 2012, the IRS has provided some transitional relief for small employers. Until further guidance is provided, if an employer was required to file fewer than 250 W-2s for the preceding calendar year, they are not subject to the reporting requirements for the current calendar year. For instance, if an employer did not file 250 W-2s in 2011, they are not subject to the reporting requirement in 2012.

All employers that provide applicable employer-sponsored healthcare coverage are employers that are subject to the reporting requirements. This includes federal, state and local government entities, churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements. It does not include any federal, state or local government or any agency or government entity that maintains a plan for members of the military or members of the military and their families. It also does not apply when an employee is terminated and requests a W-2 before the end of the year.

Types of Coverage Reported

The webinar answered many questions about the types of coverage to report and what is included in the cost of coverage. Employers are required to report coverage under a group health plan but do not report coverage for long-term care, on-site medical clinics, dental, and vision plans. The total cost of coverage provided to the employee, regardless if paid by the employer or the employee, should be reported. However, the cost does not include amounts contributed to an Archer MSA, a Health Reimbursement Arrangement (HRA), a Health Savings Account (HSA) or any salary reduction election to a flexible spending arrangement.

Other details that were mentioned:

  • If an employee has been terminated during the calendar year, the employer may apply any reasonable method of reporting the cost of coverage provided under a group health plan as long as the employer uses the same method for all employees terminated during that calendar year.
  •  An employer is not required to file a W-2 for someone if the only purpose for doing so would be to report the amount of healthcare coverage.
  • The total of the reportable costs will not be reported on Form W-3.
  • There are a number of valuation methods available but the specific details are too cumbersome to cover in this limited space. IRS Notice 2011-28 is a great resource to explain the methods available and how and when they apply.

IRS representatives strongly stressed that the healthcare benefit amounts reported are not taxable and will not be included in Box 1 of an employee’s Form W-2. This information is for informational purposes only.

For additional information, please visit www.irs.gov.

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