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W-2 Reporting

Timeline of Provisions

W-2 Reporting

Summary

Employers required to file 250 or more W-2 forms will be responsible for reporting to employees the total cost of their group health benefit plan coverage on their W-2 forms under the Patient Protection and Affordable Care Act (the Act). Employers filing fewer than 250 W-2 forms will not be required to report the cost of health coverage. This transition relief will continue until further guidance is issued. Any supplemental guidance will not apply to any calendar year beginning within six months of the date the guidance is issued.

This requirement is informational only and does not mean that employer-provided coverage will be subject to income tax.

This requirement was effective with the 2012 W-2 forms distributed to employees in January 2013.

Video: W-2 Reporting

Some employers will be responsible for reporting to employees the total cost of their group health benefit plan coverage on their W-2 forms under the Patient Protection and Affordable Care Act. View video

Reporting Requirements

The cost of coverage generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions.

Only covered employees that elect the coverage and pay the premiums or contribution amounts receive cost of coverage information on their W-2 forms. Beneficiaries and dependents will not receive the cost of coverage.

Coverage that does not need to be reported

HIPAA "excepted benefits" plans are not subject to the W-2 reporting requirements (accident, disability income, supplemental liability, workers' compensation insurance). Stand-alone dental and vision plans are also not subject to the requirements. Coverage under an HRA, amounts contributed to an HSA or an Archer MSA, as well as salary reduction contributions to a health FSA are not reportable. In addition, employee assistance programs (EAP), wellness programs, or on-site medical clinics, if the employer does not charge a premium for this type of coverage, are not reportable on the W-2.

UnitedHealthcare Approach

Ultimately, it is the employer's responsibility to accurately determine which employees should receive cost of coverage information. Employers are encouraged to consult with their legal counsel or tax preparer for advice on who should be included and what should be reported to meet the W-2 reporting requirement.

For More Information

Frequently Asked Questions

General Requirements

What does the W-2 reporting require?

The guidance requires that employers report the aggregate cost of applicable employer-sponsored coverage on W-2 forms (PDF) in box 12, using code DD.

What is "applicable employer-sponsored coverage?"

Applicable employer-sponsored coverage is coverage under any group health benefit plan made available to the employee that is excluded from the employee's gross income or would be excluded if it were provided by the employer.

Does reporting the cost of coverage on a W-2 have any impact on whether the coverage is taxable?

No. This reporting is informational only and does not mean that employer-provided coverage is taxable.

Where is the cost of employees' health benefit coverage reported on the W-2 form?

The cost of coverage is reported in box 12 on the W-2 (PDF), using code DD.

What is a group health benefit plan?

A group health benefit plan (including a self-funded plan) is a plan of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care coverage (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families. A group health benefit plan is generally offered by employers who often pay for a portion of the employees' premiums.

Will all participants and beneficiaries covered by the plan receive the cost of coverage information on their W-2 forms?

No. It's important to note that only covered employees that elect the coverage and pay the premiums or contribution amounts will receive cost of coverage information on their W-2 forms. For example, if a husband and wife work for the same company and are covered under the same health benefit plan, and the husband signed up for the plan and pays the premiums, he is considered the covered employee. Only the husband, in this case, would have the cost of coverage reported on his W-2. The wife is considered a beneficiary or dependent on the plan and would not have the cost of coverage on her W-2.

Types of Coverage Included

Does the cost of coverage include both the portion of the cost paid by the employer and the portion of the cost paid by the employee?

Yes. The cost of coverage generally includes both the portion of the cost paid by the employer and the portion of the cost paid by the employee, regardless of whether the employee paid for that cost through pre-tax or after-tax contributions. However, in the case of coverage under a health flexible spending account (FSA), the reportable cost includes the amount of the FSA benefit that exceeds the salary reduction election.

What is not included in the total cost of coverage?

Notice 2012-9 confirms that applicable employer-sponsored coverage does not include:

  • Coverage for excepted benefits under the Health Insurance Portability and Accountability Act (HIPAA) (such as long-term care, accident, disability income, liability and supplemental liability insurance, automobile medical payments, and workers' compensation insurance)
  • Coverage for a specific disease or illness or hospital indemnity insurance
  • Coverage provided by the federal government, state government or agency of the government under a plan that is maintained primarily for members of the military and their families
  • Coverage under a self-funded plan that is not subject to any federal continuation requirements Consolidated Omnibus Budget Reconciliation Act (COBRA), Public Health Services Act (PHSA) continuation, Federal Employee Health Benefits Program (FEHBP) continuation, such as a group health benefit plan sponsored by a church
  • Coverage under a health reimbursement account (HRA)
  • Contributions to a health savings account (HSA) or Archer medical savings account (MSA)
  • Salary reduction contributions to a health flexible spending account (FSA)
  • Coverage under a "stand-alone" dental or vision plan if the plan satisfies the requirements for being excepted benefits for purposes of HIPAA
  • Coverage for employee assistance program (EAP), wellness program, or on-site medical clinic, if that employer does not charge a premium for this type of coverage under COBRA
What are the requirements for being excepted benefits for purposes of HIPAA?

Generally, participants either (1) must be offered excepted dental or vision benefits under a separate policy, certificate, or contract of insurance (that is, not offered under the same policy, certificate, or contract of insurance under which major medical or other health benefits are offered) or (2) must have the right to decline the dental or vision benefits, and if they do elect the dental or vision benefits, they must pay an additional premium or contribution for that coverage. An employer must include the cost of coverage under a dental plan or a vision plan if the plan does not satisfy these requirements.

Does the total cost of coverage include any portion of coverage under an employer-sponsored group health benefit plan that is included in the employee's gross income?

Yes. The total cost of coverage includes coverage for the employee and any person covered by the plan because of a relationship to the employee. This includes any portion of the cost that is included in an employee's gross income. The total cost of coverage is not reduced by the amount of the cost of coverage that may be included in the employee's gross income.

Employers Impacted

What employers are subject to the reporting requirement?

Generally, all employers required to file 250 or more W-2 forms in the preceding year and that provide applicable employer-sponsored coverage are subject to the reporting requirement.

The following employers are subject to this requirement:

  • Federal agencies
  • State and local government entities
  • Churches and other religious organizations, but coverage under self-funded church plans is excepted (see below)

The following are not subject to this requirement until further guidance is issued:

  • Employers that filed fewer than 250 W-2 forms for the preceding calendar year
  • Tribally chartered corporations
  • Self-funded group health benefit plans not subject to any federal continuation coverage requirements, such as self-funded church plans

The following are not subject to this requirement:

  • Federally recognized Indian tribal governments
  • Plans maintained primarily for members of the military or for members of the military and their families
Is the cost of coverage under a multiemployer plan required to be included in the cost of coverage reported on the W-2?

No. An employer that contributes to a multiemployer plan is not required to include the cost of coverage provided to an employee under that multiemployer plan. Even if the only applicable employer-sponsored coverage for the employee is provided under a multiemployer plan, the employer is not required to report any amount for that employee.

Methods for Reporting

How should the cost of coverage be reported for an employee who terminates employment?

An employer may apply any reasonable method of reporting the cost of coverage provided that the method is used consistently for all employees who terminate employment during the plan year. However, regardless of the reporting method used by the employer for other terminated employees, an employer is not required to report any amount in box 12, code DD for an employee who requested a W-2 before the end of the calendar year that the employee terminated employment.

If an individual is an employee of multiple employers within a calendar year, must each employer provide a W-2 form reporting the cost of coverage?

Yes, in most cases, each employer providing employer-sponsored coverage must report the cost of coverage it provides. However, if the employers are related, and one of the employers is a common paymaster for wages paid to the employee, the common paymaster must include the total cost of the coverage provided to that employee by all the employers for which it serves as the common paymaster. The common paymaster reports the cost of coverage on the W-2 it issues to the employee. In this case, the related employers must not report the cost of coverage they provide. If the employers are related employers, but do not compensate an employee that is also employed with a common paymaster, then the related employers may either report the cost of coverage on one of the W-2 forms or split the cost using any reasonable method of allocation.

Employers participating in a multiemployer health benefit plan are not required to report any amount on the W-2 when that coverage is the only coverage provided to the employee.

If an individual transfers to a new employer that qualifies as a successor employer, must both the predecessor and successor employers report the cost of coverage each provided?

Yes, unless the successor employer chooses the option of issuing one W-2 that reflects wages paid to the employee during the calendar year by both the predecessor employer and the successor employer. The successor employer must include the cost of coverage provided by both employers on the W-2 that it issues. If both the predecessor and successor employers issue W-2 forms, they would report the cost of coverage each provided.

Must an employer issue a W-2 including the cost of coverage to an individual to whom it is not otherwise required to issue a W-2?

No. An employer is not required to issue a W-2 with the cost of coverage to an individual to whom it is not otherwise required to issue a W-2. This includes retirees and former employees who do not receive any compensation from the employer.

Is the total cost of coverage attributable to an employer's employees required to be reported on Form W-3, Transmittal of Wage and Tax Statements?

No.

Calculation Methods

How may an employer calculate the cost of coverage under a plan?

The cost of coverage for an employee is the sum of the reportable costs for each period (such as a month) during the year as determined under the method used by the employer. An employer is not required to use the same method for every plan, but must use the same method with respect to a plan for every employee receiving coverage under that plan. There are several ways to calculate the cost of coverage for employees: The COBRA applicable premium method, the premium charged method or the modified COBRA premium method.

  • Under the COBRA applicable premium method, the reportable cost for a period equals the COBRA applicable premium for that coverage for that period (without the 2% fee.) If the employer applies this method, the employer must calculate the COBRA applicable premium in a manner that satisfies the requirements under Section 4980B (f)(4). Under current guidance, the COBRA applicable premium calculation would meet these requirements if the employer made such calculation in good faith compliance with a reasonable interpretation of the statutory requirements under Section 4980B (see Section 54.4980B-1). It is expected that self-funded plans would use this method.

    Example 1: For the calendar year 2012, Employer A subsidizes 50% of a reasonable good faith estimate of the COBRA applicable premium. Employer A's reasonable good faith estimate of the COBRA applicable premium for self-only coverage for each month in 2012 is $300. Accordingly, the actual COBRA premium Employer A charges individuals eligible for COBRA continuation coverage electing self-only coverage is $150 per month. If Employer A uses the modified COBRA premium method, it must treat $300 per month (the reasonable good faith estimate of the COBRA applicable premium) as the monthly reportable cost for self-only coverage for the calendar year 2012.
  • The premium charged method may be used to determine the reportable cost only for an employee covered by an employer's insured group health benefit plan. If the employer applies this method, the employer must use the premium charged by the insurer for that employee's coverage (for example, for single-only coverage or for family coverage, as applicable to the employee) for each period as the reportable cost for that period.

    Example 2: Employer B determined that the COBRA applicable premium for each month in calendar year 2011 for individuals eligible for COBRA continuation coverage electing self-only coverage would be $350 per month, and charged an actual COBRA premium for such coverage of $357 per month ($350 x 102%). Employer B knows that the cost of coverage for 2012 is not less than the COBRA applicable premium for 2011 and decides not to make a new determination of the COBRA applicable premium for the calendar year 2012. Instead, Employer B continues to charge an actual COBRA premium for self-only coverage of $357 per month ($350 x 102%). Solely for purposes of Section 6051(a)(14) reporting, if Employer B uses the modified COBRA premium method, it must treat $350 per month ($357 charged - $7 increase permissible under COBRA) as the monthly reportable cost for self-only coverage for the calendar year 2012.
  • The modified COBRA premium method may be used by an employer only where it subsidizes the cost of COBRA (so that the premium charged to COBRA qualified beneficiaries is less than the COBRA applicable premium) or where the actual premium charged by the employer to COBRA qualified beneficiaries for each period in the current year is equal to the COBRA applicable premium for each period in a prior year. If the employer subsidizes the cost of COBRA, the employer may determine the reportable cost for a period based upon a reasonable good faith estimate of the COBRA applicable premium for that period, if such reasonable good faith estimate is used as the basis for determining the subsidized COBRA premium. If the actual premium charged by the employer to COBRA qualified beneficiaries for each period in the current year is equal to the COBRA applicable premium for each period in a prior year, the employer may use the COBRA applicable premium (without the 2% fee) for each period in the prior year as the reportable cost for each period in the current year.

    Example 3: Employer C makes a good faith estimate of the COBRA applicable premium for the calendar year 2012 for individuals eligible for COBRA continuation coverage electing self-only coverage of $500 per month. To ensure compliance with the COBRA requirements, despite not calculating a precise COBRA applicable premium, Employer C charges an actual COBRA premium of $350 per month for individuals eligible for COBRA coverage electing self-only coverage. If Employer C uses the modified COBRA premium method, it must treat $500 per month as the monthly reportable cost for self-only coverage for the calendar year 2012.

Miscellaneous: Other Issues Relating to Calculating the Cost of Coverage

If the cost of coverage changes during the year, must the reportable cost reflect the increase or decrease?

Yes. If the cost for a period changes during the year (for example, under the COBRA applicable premium method because the 12-month period for determining the COBRA applicable premium is not the calendar year), the reportable cost under the plan for an employee for the year must reflect the increase or decrease for the periods to which the increase or decrease applies.

How is the reportable cost under a plan calculated if an employee changes or terminates coverage during the year?

If an employee changes coverage during the year, the reportable cost of coverage under the plan must take into account the change in coverage. The cost should reflect the different reportable costs for the coverage elected by the employee for the periods for which such coverage is elected.

Similarly, if an employee commences coverage or terminates coverage during a period, an employer may use any reasonable method to calculate the reportable cost for that period, provided that the same method is used for all employees with coverage under the plan.

Example 1: Employer determines that the monthly reportable cost under a group health benefit plan for self-only coverage for the calendar year 2012 is $500. Employee is employed by Employer for the entire calendar year 2012, and had self-only coverage under the plan for the entire year. For purposes of reporting for the 2012 calendar year, Employer must treat the 2012 reportable cost under the plan for Employee as $6,000 ($500 x 12 months).

Example 2: Employer determines that the monthly reportable cost under a group health benefit plan for self-only coverage for the period Oct. 1, 2011, through Sept. 30, 2012, is $500, and that the monthly reportable cost under a group health benefit plan for self-only coverage for the period Oct. 1, 2012, through Sept. 30, 2013, is $520. Employee is employed by Employer for the entire calendar year 2012 and had self-only coverage under the group health benefit plan for the entire year. For purposes of reporting for the 2012 calendar year, Employer must treat the 2012 reportable cost under the plan for Employee as $6,060 ($500 x 9 months) + ($520 x 3 months).

Example 3: Employer determines that the monthly reportable cost under a group health benefit plan for self-only coverage for the calendar year 2012 is $500, and that the monthly reportable cost under the same plan for self plus spouse coverage for the calendar year 2012 is $1,000. Employee is employed by Employer for the entire calendar year 2012. Employee had self-only coverage under the plan from Jan. 1, 2012, through June 30, 2012, and then had self plus spouse coverage from July 1, 2012, through Dec. 31, 2012. For purposes of reporting for the 2012 calendar year, Employer must treat the 2012 reportable cost under the plan for Employee as $9,000 ($500 x 6) + ($1,000 x 6).

Example 4: Employer determines that the monthly reportable cost under a group health plan for self-only coverage for the calendar year 2012 is $500. Employee commences employment and self-only coverage under the plan on March 14, 2012, and continues employment and self-only coverage through the remainder of the calendar year. For purposes of reporting for the 2012 calendar year, Employer treats the cost of coverage under the plan for Employee for March 2012 as $250 ($500 x ). Because Employer's method of calculating the reportable cost of under the plan for March 2012 was by prorating the reportable cost for March 2012 to reflect Employee's date of commencement of coverage is reasonable, Employer must treat the 2012 reportable cost under the plan for Employee as $4,750 ($500 x ) + ($500 x 9).

Must the cost of coverage be adjusted for any elections or notifications in the subsequent year that may impact the cost of coverage in the earlier year, such as a divorce?

1/5/12: No. The aggregate reportable cost for a calendar year reported on the W-2 form may be based on the information available to the employer as of December 31 of the calendar year.

How may an employer address a coverage period, such as the final payroll period of a calendar year that includes December 31, that continues into the subsequent calendar year?

There are a few ways:

  • Treat the coverage as provided during the calendar year that includes December 31
  • Treat the coverage as provided during the calendar year immediately subsequent to the calendar year that includes December 31
  • Allocate the cost of coverage for the coverage period between each of the two calendar years under any reasonable allocation method, which generally should relate to the number of days in the period of coverage that fall within each of the two calendar years. Whichever method the employer uses must be applied consistently to all employees.
How may an employer calculate the cost of coverage under a program with benefits that must be included and health benefits that are not employer-sponsored coverage, such as a long-term disability program?

For a program where an employee receives both applicable and non-applicable employer-sponsored coverage, an employer may use any reasonable allocation method to determine the cost of the applicable employer-sponsored coverage portion.

If the portion of the program providing a non-applicable employer-sponsored benefit is only incidental in comparison to the portion providing other benefits, the employer is not required to include either portion of the cost in the aggregate reportable cost.

Similarly, if the portion of the program providing a benefit that is not applicable employer-sponsored coverage is only incidental to the portion of the program providing a benefit that is applicable employer-sponsored coverage, the employer may, at its option, include the benefit that is not applicable employer-sponsored coverage in determining the reportable cost, notwithstanding the prohibition on reporting coverage that is not applicable employer-sponsored coverage.

If an employer has used a 12-month determination period that is not the calendar year for applying the COBRA applicable premium, may it also use that 12-month period for calculating the reportable cost for the year?

No. The reportable cost under a plan must be determined on a calendar year basis.