Do You Need to Report Health Care Benefits on W-2s?

Christopher Axene | July 26th, 2012

“Obama Care is terrible!”  “Health care reform is great!”  Depending on your political stripes, you may have differing views on the Affordable Care Act.  Regardless of whether you love it or hate it, health care reform will impact your business in the years to come. 

Benefits Reporting on W-2s

Some health care reform mandates won’t take effect for a few years, but not this one.  Starting with the 2012 tax year, employers are required to report the aggregate cost of employer-sponsored health care coverage on employees’ W-2s.

“But, wait,” you say.  “W-2s are tax forms.  Does that mean that health care coverage is now taxable?  Do my employees and I need to pay tax on our benefits?”

No, health care coverage is not taxable.  The government’s aim in requiring health benefits to be listed on a W-2 is to make employees understand the true cost of their health care and its value as part of their total compensation package.  While this new requirement won’t cause you tax headaches, it could mean some extra compliance and HR issues.  Consider addressing them now so that, come January 2013, you’re ready to issue Affordable Care Act compliant W-2s.

Calculating the Cost of Health Benefits

Because this is the first time that you’ll need to report on the cost of health benefits, it’s likely that you might find it difficult to quantity what health care really costs your business.  You might not have the right processes or systems in place to track both employer and employee costs.  Additionally, when quantifying health care costs, you might need to account for factors that you haven’t previously considered.  What if an employee only worked for you for part of the year?  Or had a child and switched to family insurance coverage mid-year?  These are just some things that could make calculating the cost of health benefits more difficult than it seems that it should be, others might include any mergers or acquisitions that you’ve completed in 2012.

Small Business Exemption

Before you start to panic about how you’re going to track down all this information, you should be aware that there’s a safe-harbor provision exempting small businesses from this reporting requirement.  If your business filed less the 250 W-2s in 2011, you’re not required to include the cost of health coverage on your W-2s.  Even better news, as the law currently stands, this reprieve isn’t just for 2012, but for all subsequent years in which you continue to file less than 250 W-2s.

Count on Rea’s Tax Team to Keep You Complaint

Do you have questions about how to calculate the costs of your health benefits?  Want to confirm if your business is exempt from this reporting requirement?  Contact Rea & Associates.  Rea’s tax team is helping businesses across Ohio to prepare to meet Affordable Care Act Requirements.  Complying with health care doesn’t need to seem like a poison pill – Rea’s tax team will work with you to make the new regulations easy to swallow.


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