If an employer filed 250 or more W-2 forms for the previous calendar year, they must include the value of health coverage on this year’s W-2 forms in Box 12 using code DD.
Applies to
Large employers who filed 250 or more W-2 forms last year and sponsored any of the following:
- A fully-insured, self-insured, or level-funded medical plan. Note: this reporting is not required for an ICHRA.
- A health Flexible Spending Arrangement (FSA) that included employer contributions
- A hospital indemnity or specified illness plan (insured or self-insured), paid for by the employer and/or by employees via pre-tax salary reduction
- Employee Assistance Program (EAP) when a COBRA premium is charged
- On-site clinic when a COBRA premium is charged
Wellness programs providing or reimbursing medical care when a COBRA premium is charged
How the Value is Determined
The requirement to report the value of health coverage on the W-2 is determined based on each employer’s own number of W-2 forms issued the previous year. So, each legal entity is evaluated separately to determine whether it issued 250 or more W-2 forms, even if under common ownership/control in a Controlled Group or Affiliated Service Group.
The IRS provides a helpful table for employers explaining what information is required vs. optional, and what specifically to never report: IRS W2 Reporting Table
For example, the IRS makes it clear in their table that payment/reimbursement of health insurance premiums for a more-than-2% S-corp. shareholder, which was included in gross income, specifically is not reportable on their W-2 in box 12.
The value reported is the full premium paid by both the employer and employee. The only exception is for health FSAs, in which case only the employer’s contributions are to be reported, not the employee’s pre-tax contributions.
Penalties for Non-Compliance
If an employer fails to include the required information, they could be subject to fines and penalties for filing incorrect/incomplete W-2 forms and required to reissue impacted W-2 forms.
Practical Impact on Employers
The reported value is for informational purposes only. It does not affect employees’ taxable income. Payroll systems are typically set up to handle this automatically for the employer, but the table does highlight specifics of when certain plans are required or optional, and specifically when certain coverages must not be reported. So, the employer may need to ensure they adhere to those details. For example, if the employer sponsors an EAP, the payroll setup may not include reporting in box 12. So, if the employer charges a COBRA premium for the EAP, it is incumbent on the employer to notify the payroll company that the EAP actually must be included in box 12 to ensure full compliance is met.