W-2 Reporting Requirement Review



Coverage Subject to the Reporting Requirement

Employers must report the aggregate reportable cost of applicable employer-sponsored health coverage. Applicable employer-sponsored health coverage generally includes any coverage under any group health plan which is excludable from the employee’s gross income, or would be excludable if it were employer-provided coverage. However, some types of employer-provided health coverage are not considered “applicable employer-sponsored coverage.” In addition, the cost of certain benefits that are considered applicable employer-sponsored coverage is not required to be included in the reportable aggregate cost. Finally, certain employers are completely exempt from the reporting requirement, regardless of the benefits they provide. These exemptions and exclusions are summarized below.

Benefits That Are Not Considered Applicable Employer-Sponsored Coverage

The following types of coverage that are not considered Applicable Employer-Sponsored Coverage:

Costs That Are Not Included in the Aggregate Reportable Cost

The following amounts are not included in the aggregate reportable cost:

Health Flexible Spending Accounts (FSA)

The amount contributed through salary reduction by an employee to a health FSA is not included in the aggregate cost of employer-sponsored coverage. However, contributions attributed to employer flex credits must be reported to the extent that the value of the health FSA for the plan year exceeds the employee salary reduction contributions. See IRS Notice 2011-28, Q&A 19 for specific examples.

Employers Subject to the Reporting Requirement

All employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, unless they qualify for the transition relief described below. This includes private sector employers, state and local governments, churches and other religious organizations.

Transition Relief

Under the interim transition relief announced in IRS Notice 2012-9, an employer is not subject to the reporting requirement if:

This transition relief will continue until the issuance of further guidance.

Method of Reporting on Form W-2

The aggregate reportable cost is reported on Form W-2 in Box 12, using code DD. This information is not required to be reported on Form W-3, Transmittal of Wage and Tax Statements.

Please note that an employer is not required to report any amount in Box 12, for an employee who has requested to receive a Form W-2 before the end of the calendar year during which the employee terminated.

If an individual has multiple employers within a calendar year, each employer must only report the cost of coverage it provides. However, if employers are related employers within the meaning of Internal Revenue Code Section 3121(s) and one employer is a common paymaster for wages paid to the employee, the common paymaster must include the aggregate reportable cost of the coverage provided to that employee by all the employers for whom it serves.

Aggregate Reportable Cost of Applicable Employer-Sponsored Coverage

The aggregate reportable cost 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:

Methods of Calculating the Cost of Coverage

An employer may calculate the reportable cost under a plan using one of the following methods:

COBRA Applicable Premium Method: The reportable cost for a period equals the COBRA applicable premium for that coverage for that period.

Premium Charged Method: This may only be used for an employee covered by an employer’s fully-insured group health plan. In this case, 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) as the reportable cost for that period.

Modified COBRA Premium Method: 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 for each period in the prior year as the reportable cost for each period in the current year.