The IRS has published guidelines for employers on how to report the cost of group health coverage on Form W-2 (in box 12, code "DD"). The notice addresses what costs to include and alternative ways to calculate the cost of coverage. Some highlights are:
- Reporting is mandatory for 2013 for employers that file W-2s to the Social Security Administration (i.e., W-2s provided to employees in January 2014, for calendar year 2013).
- Employers are required to issue a W-2 including the reportable cost of health coverage only to individuals who receive compensation; not to retirees, surviving spouses, or others who may receive health coverage through the employer, but no compensation.
- In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee.
- Examples of coverage that should not be included in reporting:
- Health Savings Accounts (HSAs)
- Health Reimbursement Accounts (HRAs)
- Amount of any salary reduction election to a Section 125 Flexible Spending Arrangement (e.g. health FSA)
- Dental coverage (if not integrated with major medical)
- Vision coverage (if not integrated with major medical)
- Accident or disability income insurance
- Any coverage for Long Term Care
- Automobile medical payment insurance
- Workers' compensation
- For mid-month coverage changes (e.g., changes in cost, termination, or status change), employers are permitted to use any reasonable method to determine the reportable cost, such as the reportable cost at the beginning or end of the period, or averaging or prorating the costs, but the same method must be used for all employees with coverage under that plan.
- For terminated employees during the calendar year, employers may apply any reasonable method of reporting the cost of coverage, provided the method is used consistently for all terminated employees who received coverage during the plan year. An employer is not required to report any amount in W-2 box 12 (code DD) for any terminated employee who requests a W-2 before the end of the year.
Clients should track these reporting requirements throughout the year and notify your payroll company at year-end to ensure reporting compliance on W-2s.