New W-2 Reporting Duty for "Large" Employers

As the year 2012 draws to a close, employers will be busy preparing Form W-2 for their employees.  Form W-2 must be provided to employees no later than January 31, 2013.  Under the new health care reform law, employers that filed 250 or more W-2's for 2011 (prepared in January 2012) are classifed as "large" employers for this purpose and must report the aggregatge cost of employer-provided health insurance on W-2's for 2012 (prepared in January 2013).  Employers that filed less than 250 W-2's for 2011 do not have to report the cost of health insurance on the W-2, even if they have 250 or more W-2s for 2012.

The cost is to be reported in box 12 of Form W-2 using the code "DD."  The cost is for information reporting only; it is not taxable compensation to the employees and therefore should not be included with other compensation reported in boxes 1, 3, or 5 of Form W-2.

The "aggregate cost" of employer-provided health insurance follows these general rules.  Be sure to check IRS Notice 2012-9 for your specific circumstances.

1. Include premiums paid by the employer.
2. Include premiums paid by the employee (whether pre-tax or after-tax).
3. Include COBRA premiums of former employees and beneficiaries.
4. Exclude pre-tax employee contributions to health flexible spending accounts.
5. Exclude contributions to a health savings account.
6. Exclude coverage for long-term care.
7. Exclude the cost of separate policies covering dental or vision.

The IRS has reserved the right to lower the 250 W-2 threshold in the future, so smaller employers may yet have to deal with this paperwork requirement.