Reporting Value of Insurance Plans on Employee Forms W-2

Frequently Asked Questions (FAQ)

What is the Form W-2 Reporting provision all about?

Essentially, this provision is about transparency and education, requiring employers to report the total value of an individual employee's health benefits on their W-2 form. As a result, employees will better understand the true benefit they receive through their employers, and at the same time gain awareness of the true cost to obtain health coverage. This provision is now optional for employers filing fewer than 250 Forms W-2 in the previous tax year. This is effective for 2012 Forms W-2 (issued in January 2013) and until further guidance is issued. Employers filing 250 or more Forms W-2 in 2011 must include the cost of employer sponsored health coverage on the forms beginning in the tax year 2012.

Even though it is now optional for tax year 2011 and 2012 for some businesses, according to the IRS, how will Paychex collect the information to report the aggregate cost of employer-sponsored health coverage on employees' W-2s?

For payroll clients, we are looking into solutions to be able to provide proper reporting of the total value of health coverage. We are closely monitoring the issue and will communicate more details if more guidance is offered by the IRS.

For clients who purchase health insurance coverage through Paychex Insurance Agency, we will be able to report the value of premiums of the plans we administer, and we are investigating possibilities for transferring the appropriate amounts to Forms W-2 at year-end.

Who is responsible for reporting insurance value on Forms W-2?

Though Paychex may provide assistance, the employer is ultimately responsible for meeting this reporting requirement.

What is the Cadillac Plan Tax?

Effective January 1, 2018, plan administrators or insurers will be charged a 40 percent excise tax if the total value of the employer-sponsored health insurance coverage is above $10,200 for single coverage or $27,500 for family coverage. For high-risk professions and qualified retirees, the figures change to $11,850 for single coverage and $30,950 for family coverage. Note that the IRS has not finalized the regulations on this provision.

What constitutes the total value of the employer premium that must be reported on the Form W-2?

To report the aggregate cost of employer-sponsored health coverage on employees' W-2s, the Form W-2 must include the combined cost of the employer-sponsored health coverage taking into account both the amount the employer pays and the amount the employee pays. The value will then be determined under rules similar to COBRA. The cost of coverage under all applicable employer-sponsored coverage must be included in the aggregate reportable cost. However, the following amounts are not included:

• the amount contributed to any Archer MSA
• the amount contributed to any Health Savings Account (HSA)
• the amount of any salary reduction election to a flexible spending arrangement
• the cost of coverage under a Health Reimbursement Arrangement (HRA)
• the amount that an employee elected to apply to a health FSA under a cafeteria plan under Section 125 (excluding any employer matching contribution)
• cost of coverage under a stand-alone dental plan or vision plan
• cost of coverage under a self-insured group health plan not subject to federal continuation requirements
• cost of coverage of military personnel provided by the federal government (or a state or local government)

Is reporting the value of insurance on Form W-2 informational or a taxable component?

The Form W-2 provision for reporting the total value of health insurance is informational and does not change the taxability.

Does W-2 Reporting mean that the value of health insurance will be taxable to employees?

The Health Care Reform Law includes a provision that all employers must report the total value of employer-sponsored insurance coverage, excluding salary reduction contributions under medical flexible spending accounts (FSAs) contributions to MSA and HSA plans, and stand-alone dental and vision coverage, on employees' Forms W-2. In October 2010, the IRS announced that it will defer the original start date of the requirement, making it optional for tax year 2011 and mandatory for larger employers filing 250 or more Forms W-2 beginning with the 2012 tax year.

There is much speculation in the public and political arena about how this information will affect taxable income and corresponding taxes paid by employers and employees. Paychex closely monitors Health Care Reform developments, and currently, there is no indication or reason to believe that this reporting requirement is an indicator that insurance coverage will be taxed simply because it is reportable on Form W-2.

Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, this is not a result of W-2 reporting included in the Health Care Reform Law.

We will continue to monitor this issue and will provide details as we receive additional information from the IRS.

Will the cost of the insurance premium we pay for an employee (currently 100%) and report on the Form W-2 be subject to federal, state, or local tax for the employer and employee?

In October, the IRS released the draft 2011 Form W-2 which indicates how the health care cost will be reported in existing Box 12 and also makes it clear that this amount is not taxable income to employees. This amount will not need to be reported on the Form W-3. Certain employer contributions to discriminatory health plans may result in taxable income to the employee; however, such treatment is not a result of Form W-2 reporting requirement of PPACA. Tax structure for employee and employer contributions for the most part have not changed under the new law. The only notable exception was the expansion of the tax exclusion of adult dependents to the age of 27 under section 125 plans. This change allows more dependents covered under their parents' employer's section 125 plan to be excluded from tax contributions, essentially reducing tax liability.

If a small employer doesn't offer group health insurance but pays accident insurance, does that premium need to be reported on the Form W-2?

Plans in which coverage costs can be reported on Form W-2 include medical, prescription, executive physicals, on-site clinics (if they provide more than de minimis care), Medicare supplemental policies, and employee assistance programs. The cost of coverage of stand-alone dental and vision plans and specific disease or hospital/fixed indemnity plans is excluded from the reporting requirement.

What premiums need to be included on the Form W-2?

Employer-sponsored coverage under Form W-2 reporting generally includes (but is not limited to): major medical coverage; Medicare supplemental coverage; employer-provided Medicare Advantage plans; and limited benefit plans. Coverage under dental and vision plans are also included unless they are "stand-alone" plans.

HRA contributions are not included.

Does Form W-2 reporting of insurance plan values apply to all employers?

No. The reporting is optional for the 2011 tax year for all employers but will only be mandatory for those employers filing 250 or more Forms W-2 beginning with the 2012 tax year.

When Does the Form W-2 insurance premium reporting begin?

Form W-2 reporting is now optional for tax year 2011 according to IRS Notice 2010-69 released in October,2010. For larger employers filing 250 or more Forms W-2, the aggregate cost of employer-sponsored health coverage is required to be included on the Form W-2 for tax year 2012.

Does insurance still need to be reported on Forms W-2 if a section 125 is in place?

Whether group health insurance premiums are deducted from an employee's pay on a pretax or post-tax basis does not affect whether it needs to be reported on the Form W-2. According to the new Health Care Reform law, the combined cost of employer-sponsored health coverage must be included on the employee's Form W-2. This combined cost specifically excludes salary reduction contributions under a section 125 health FSA, not the premiums under the premium portion of the section 125.

Paychex Insurance Agency Can Help

Paychex Insurance Agency is a full-service organization that has taken a leadership role in transforming how businesses like yours adapt to and benefit from the rapidly changing insurance industry. We're ready to offer information and assistance to help you navigate the recent Health Care Reform initiatives.

If you use Paychex Insurance Agency for your health benefits and to manage your employee enrollment information and premium deductions, we will be able to help you meet the IRS requirement because we can report the total value of premiums for employees enrolled in plans through Paychex Insurance Agency. Although we are waiting for details and additional guidance, Paychex Insurance Agency also hopes to be able to transfer the appropriate amounts to your W-2s at year-end to meet the IRS requirement.

Health Care Reform Updates

With access to legislative and regulatory specialists in Washington, D.C. and expert, in-house sources of legal and compliance guidance, Paychex Insurance Agency is your source for Health Care Reform knowledge, tools, and resources.

Whether you're looking for a Business Owner Policy, Workers' Compensation insurance or group health and life insurance, Paychex Insurance Agency offers flexible, scalable insurance solutions for you, your business and your employees. To learn more about how we can meet your insurance needs, call 877-393-8868 or have an agent call you.

The Department of Health and Human Services and the Internal Revenue Service (IRS) continue to provide specifics and guidance on the Health Care Reform Act. Paychex will monitor these regulatory developments and provide updates as appropriate.

The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. It is provided for informational purposes only. If you require legal or accounting advice, or need other professional assistance, you should always consult your licensed attorney, accountant, or other federally licensed tax professional to discuss your particular facts, circumstances, and business needs.

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