The Affordable Care Act (ACA) requires employers to report the total gross cost of employer-sponsored health coverage on employees’ Form W-2.
This reporting requirement is intended to provide employees with information about the value of their health benefits and help increase awareness of health care costs.
It does not make the coverage taxable to employees.
Note: This is entirely separate from, and unrelated to, the ACA’s W-2 Box 1 Income ACA affordability safe harbor.
Who Must Report
- Generally Required:
- Employers that file 250 or more W-2 forms for the prior calendar year must comply with the reporting requirement.
- Optional for Smaller Employers:
- Employers that issue fewer than 250 W-2s are currently exempt, though they may choose to report voluntarily.
- This threshold is determined annually, based on the number of W-2s filed in the preceding calendar year, not the current year.
- Counsel from a tax professional should be sought.
What to Report
- Employers must report the gross aggregate cost of employer-sponsored health coverage, including both:
- The employer-paid portion (employer contribution)
- The employee-paid portion (employee contribution, including pre-tax contributions)
- The cost is reported in Box 12 of Form W-2 using Code DD.
Coverage Types Included
The reporting requirement applies to most employer-sponsored group health plans, including:
- Major medical coverage (fully insured or self-funded)
- Prescription drug coverage (if integrated with medical)
- Health Reimbursement Arrangements (HRAs), if integrated with major medical coverage
Coverage Types Excluded
The following benefits are not required to be reported:
- Dental and vision coverage if offered on a stand-alone basis
- Health savings accounts (HSAs)
- Employee Assistance Programs (EAPs), wellness programs, and on-site medical clinics that qualify as excepted benefits
- Long-term care insurance
- Coverage under a multiemployer (union) plan
Key Notes
- Informational Only: Reporting the cost of coverage on Form W-2 does not mean the coverage is taxable.
- Timing: The reporting is based on the calendar year, not the plan year.
- COBRA Rates: Employers should ensure they are using accurate COBRA-equivalent rates or another IRS-approved method to calculate the aggregate cost (employer contribution + employee contribution = 100% gross cost)