Employers who issue at least 250 W 2s are required to include the value of employer sponsored health coverage in box 12 of form W 2. Many employers do not realize that some of their supplemental insurance policies meet the criteria for this reporting requirement.
The ACA (Patient Protection and Affordable Care Act) was enacted to expand access to affordable health insurance. Starting in 2012, part of the legislation subjected employers to new reporting requirements.
Employers who issue 250 or more W 2s are required to include the value of applicable employer sponsored health coverage on Box 12 of Form W 2 with code DD. These employers, known as ALEs (Applicable Large Employers) must also provide this information to the IRS for administration of the premium tax credit and shared responsibility provisions. This reporting is optional but encouraged for employers issuing fewer than 250 W 2s, as well. Doing so gives employees the information that they need to shop for health insurance and compare prices and coverage to that which they receive through their employer.
W 2 reporting is only one aspect of ACA reporting; employers should consult with their accountant or financial advisor to complete and file Forms 1095 C and 1094 C or other requirements as applicable. While supplemental health insurance policies do not meet the criteria for affordable minimum essential coverage that ALEs must provide to full time employees under the ACA, some policies do fall within the year end W 2 reporting requirements.
ACA Reporting Requirements and Supplemental Insurance
In general, the amount of employer sponsored health insurance reported with code DD in box 12 of the W 2 should reflect the full cost of coverage and include both employee and employer contributions. Recording this amount does not add to an employee’s taxable wages or have any impact on their tax liability. This amount may include, but is not limited to, policies such as:
Primary medical insurance policies that meet the criteria for affordable minimum essential coverage set forth by the ACA
Prescription drug insurance coverage
Dental insurance policies that are not HIPAA excepted
Vision insurance policies that are not HIPAA excepted
Specified disease supplemental insurance coverage (such as cancer insurance or critical illness insurance)
The cost of coverage for domestic partners and non tax dependents
Benefits that are considered excepted under HIPAA (The Health Insurance Portability and Accountability Act) are not subject to the ACA W 2 reporting requirements, such as standalone dental and vision policies, life insurance coverage, disability and accident coverage, and others. There are some types of supplemental insurance policies that are subject to the W 2 reporting requirements of the Affordable Care Act even though they do not meet the criteria for minimum essential coverage, however.
Hospital Indemnity Insurance or Specified Illness Insurance
To determine if your hospital indemnity or specified illness plans need to be reported, you will need to consider how they are funded. In general, plans which are 100% funded with an employee’s after tax dollars are not reportable.
For supplemental insurance products such as cancer policies, critical illness coverage, and hospital indemnity, the value of these benefits is considered reportable only when employees pay for coverage on a pre tax basis or employers contribute to the cost of coverage:
If your hospital or specified illness plan is employee funded through pre tax payroll deductions, it may meet the criteria for reportable group health coverage.
If your hospital or specified illness plan is employer funded, it may meet the criteria for reportable group health coverage.
Dental or Vision Insurance
Reporting coverage of supplemental dental and vision insurance is optional when the coverage is offered separately from major medical coverage in most circumstances:
For dental or vision coverage that is not integrated into another health plan, reporting is optional.
If you offer dental or vision coverage that employees may decline or elect by paying an additional premium, reporting is optional.
The IRS has published a chart detailing various insurance coverage types, funding scenarios, and reporting requirements that businesses may consult to determine the requirements for each of their health and wellness plans.
Circumstances beyond the plan type and funding provisions may also impact whether this information must be included on an employee’s Form W 2.
For example, if an employee terminates before the end of the year and makes a written request for their W 2 before the end of the calendar year, including the cost of applicable coverage on the W 2 is optional. This exception only applies if the employee makes the request for the W 2 in writing before the end of the year. If it is your company’s policy to print W 2s at the time of termination, the exception does not apply.
Compliance With Supplemental Insurance Reporting Requirements
Non compliance with the ACA provisions can lead to penalties for covered employers. Outsourcing your HR and payroll needs can help your company to meet ACA and other reporting obligations by providing you with a team of experts on call to help answer even the most vexing of compliance concerns.Learn more about how supplemental insurance helps small and medium businesses achieve their organizational goals in the free guide: Accuchex Employer’s Guide to Supplemental Insurance, or call Accuchex Payroll Management Services at 877-422-2824 to talk to one of our specialists today.