What Box Does Health Insurance Go in on W-2?

The Affordable Care Act (ACA) requires employers to report the cost of health insurance coverage on employees’ W-2 forms. This reporting helps employees understand the value of their employer-provided health benefits.

What is Form W-2?

The W-2 is an annual tax form that employers must send to employees and the IRS at the end of each year. It reports an employee’s annual wages, tips, and other compensation. It also shows the amount of federal, state, and other taxes withheld from the employee’s paychecks throughout the year.

Form W-2 contains several numbered boxes that report different types of employee compensation and tax information.

ACA Reporting Requirement

Under the ACA, employers must report the cost of employer-sponsored health coverage in Box 12 of Form W-2 using Code DD. This reporting took effect in tax year 2012 for most employers.

The purpose is to provide employees with information on how much their health coverage costs. It can help them appreciate the value of that coverage when shopping for insurance on their own.

Importantly, this reporting is for informational purposes only. The amount reported in Box 12, Code DD does not affect the employee’s tax liability in any way. The value of employer-provided health coverage remains excludable from an employee’s taxable income.

Which Employers Must Report?

In general, the ACA’s W-2 health coverage reporting requirement applies to:

• Businesses
• Tax-exempt organizations
• Federal, state, and local government entities
• Churches and religious organizations

Exceptions apply for:

• Employers filing fewer than 250 W-2s in the prior tax year
• Federally recognized Indian tribal governments
• Self-insured plans not subject to federal COBRA continuation coverage requirements

Certain types of small employers may be eligible for transition relief delaying the reporting requirement. Employers should check with the IRS for the latest guidance.

What Coverage is Reported?

The chart below summarizes what types of health coverage employers must report in Box 12, Code DD:

*Optional based on transition relief.

Self-insured employers must report coverage for domestic partners and their children, even though this coverage is taxable. Employers should consult IRS instructions for details on other types of plans and arrangements.

How is the Cost of Coverage Calculated?

In general, employers must report the total cost of coverage provided to the employee for the calendar year. This includes both:

• The portion paid by the employer
• The portion paid by the employee (such as through payroll deduction)

The cost includes the employer and employee premium contributions for:

• Medical insurance
• Prescription drug coverage
• Wellness programs
• On-site medical clinics

For insured plans, the reportable cost is the total premium charged by the insurance company.

For self-insured plans, the reportable cost is the COBRA applicable premium for the employee’s coverage tier. Employers should use reasonable methods to determine the reportable cost, consistent with IRS guidance.

How Do Employees Use This Information?

Although health coverage reporting does not affect taxes, it offers several potential benefits for employees:

• It can help them appreciate the value of their workplace coverage when comparing plans and premiums.

• It may provide useful evidence of prior health coverage when applying for individual insurance policies after leaving their job.

• It gives them insight into how much both they and their employer pay toward premiums. This sheds light on the overall cost of healthcare.

Keep in mind that the amount reported represents an aggregate cost of coverage, not the care each employee actually uses. And it may appear higher than employees would pay for a similar plan on the individual insurance market. Still, this mandated reporting provides added transparency into employer-sponsored health benefits.

Key Takeaways

• The Affordable Care Act requires employers to report the cost of employer-provided health insurance on Form W-2, Box 12, using Code DD.

• This reporting is for informational purposes only and does not affect an employee’s taxable income or taxes.

• The reportable cost includes medical, prescription drug, wellness programs and on-site clinic coverage. HSA contributions are not included.

• The total premium cost for the year is reported, including both employer and employee shares.

• Employees can use this information to understand the value of their health benefits.

Understanding where health coverage is reported on Form W-2 can help employees appreciate the often unseen cost of their workplace medical insurance. While it does not change tax liability, mandatory ACA reporting provides added insight into overall compensation.