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Reporting the cost of employer-sponsored health coverage on W-2 Forms

Nov 2012

The Patient Protection and Affordable Care Act ( PPACA) requires employers that issue 250 or more Forms W-2 to report the cost of employer-sponsored health coverage on the Form W-2 issued to employees starting with the 2012 Forms W-2 that employers are generally required to furnish to employees in January 2013.  The purpose of the reporting requirement is to provide useful and comparable consumer information to employees on the cost of their health coverage. It does not cause otherwise excludable employer-provided health coverage to become taxable.

Covered Employers

The requirement applies to most employers, including federal, state and local government entities, churches and other religious organizations, and employers that are not subject to continuation coverage requirements under COBRA, to the extent such employers provide applicable employer-sponsored coverage under a group health plan (although employers who only sponsor self-funded group health plan coverage that is not subject to COBRA are not required to report the cost of the coverage on Form W-2).

Small Employer Exemption: Small employers (those that are required to file fewer than 250 Forms W-2 for the calendar year prior to the reporting year) are not subject to the reporting requirement for 2012 Forms W-2, nor subsequent years, until further guidance is issued.

Multiemployer Plans: An employer that contributes to a multiemployer plan is not required to report the cost of coverage under that multiemployer plan. If the only applicable employer-sponsored coverage provided to an employee is provided under a multiemployer plan, the employer is not required to report any amount with respect to that employee.

The cost of coverage

The amount reported includes both the employer's and the employee's contributions towards coverage, regardless of whether the employee paid for the coverage on a pre-tax or after-tax basis. A fully-insured plan can report the premium charged by the insurance carrier.  In the case of a self-insured plan, the plan administrator can calculate the premium using either an actuarial method or past cost method.

The reportable amount may be based on the information available to the employer as of December 31, and a corrected Form W-2 need not be provided if an election change occurs that has a retroactive event (e.g., notice of a divorce in the prior year);

The types of coverage reported

The reporting requirement applies to employer-sponsored group health plans (whether fully insured or self-funded), which generally include major medical plans and limited benefit plans (e.g., so-called "mini-med" plans). 

The types of coverage not reported

  • Employee assistance program (EAP), wellness program, or on-site medical clinic coverage if the employer does not charge a premium to COBRA-qualified beneficiaries with respect to that type of coverage ; however, an employer may include it if desired, provided that the coverage is applicable to employer-sponsored coverage.
  •  Dental or vision coverage, to the extent it qualifies as a HIPAA-excepted benefit; *
  •  Long-term care and accident-only or disability coverage;
  •  Specified disease or illness and hospital indemnity or other fixed indemnity insurance, to the extent that the cost of coverage is paid by the employee on an after-tax basis and the coverage is offered as an independent, noncoordinated benefit; 
  •  Contributions made to an Archer medical savings account (MSA) or a health savings account (HSA) because they are reported separately in box 12 using code R for MSAs and code W for HSAs;
  • Employee contributions to a health flexible spending account (FSA). Note: The cost of an employer-funded FSA is reported only if the amount of the FSA for the plan year exceeds the salary reduction elected by the employee for the plan year (in other words, the requirement does not apply to FSA coverage if contributions occur only through employee salary reduction elections); and
  •  Coverage under a health reimbursement arrangement (HRA); however, an employer may include it if desired.

Terminated Employees

An employer may apply any reasonable method of reporting the cost of coverage provided under a group health plan for an employee who terminated employment during the calendar year, provided that the method is used consistently for all employees receiving coverage under the plan who terminated employment during the plan year and otherwise received coverage after termination of employment.

Example 1:  Employee is employed on January 1 and is terminated on April 25.  During that entire period and through April 30, employee had coverage that cost $350 per month.  Employee elects COBRA continuation coverage for six months following termination from May 1 through October 31, for which the employee pays $350 per month.  Employer reports $3,500 as the reportable cost under the plan for the calendar year, covering both the months of employment and the months of COBRA coverage.

Example 2:  Same as Example 1, except that Employer reports $1,400 as the reportable cost under the plan for the calendar year, covering only the four months the employee was employed (January 1—April 25).

Both examples above are a reasonable method of reporting employee’s reportable cost under the plan as long as it is applied consistently to all terminated employees.

*Generally, to be an excepted benefit for purposes of Health Insurance Portability and Accountability Act (HIPAA), the dental or vision coverage must (1) be offered under a separate policy, certificate, or contract of insurance or (2) provide participants with the right not to elect the dental or vision coverage and if they do elect the dental or vision coverage, they must pay an additional premium or contribution for that coverage.

EANJ is a nonprofit trade association dedicated to improving employer-employee relations and facilitating the exchange of information among employers. It does not render legal services, offer legal opinion or engage in the practice of law.