Back in 2012, the Affordable Care Act introduced a new mandate, in which it requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer's contribution to health coverage continues to be excluded from an employee's income, and it is not taxable. This reporting is meant for informational purposes only, providing employees useful and comparable consumer information on the cost of their health care coverage.
Many employers are eligible for transition relief for tax-year 2012 and beyond. This transition relief applies to the 2012-2016 Forms W-2 and will continue to apply until the IRS publishes additional guidance, making the reporting requirement optional for these employers.
Who's eligible for transition relief?
- Employers filing fewer than 250 Forms W-2 for the previous calendar year (for example, employers filing fewer than 250 2015 Forms W-2 (meaning Forms W-2 for the calendar year 2015, which generally are filed with the SSA in early 2016) will not be required to report the cost of coverage on the 2016 Forms W-2.
- Employers who filed 250 or more Forms W-2 for the 2015 calendar year will be subject to the reporting requirement on 2016 Forms W-2.
Tracking Employer Sponsored Health Coverage Costs in QuickBooks
If you are currently using an Intuit QuickBooks Payroll solution, such as Basic, Standard, Enhanced, or Assisted Payroll, setup and tracking of your Employer-Sponsored Health Coverage is made easy by using the tax tracking type, Health Coverage Cost. This tax tracking type was created specifically for this requirement, and provides QuickBooks Payroll subscribers with a way to track the cost of coverage, which will report on employees' Forms W-2 in box 12, code DD.
The Intuit Payroll team has created a step-by-step guide to help you set up a payroll item for tracking the cost for your employees. See below or click here for the Health Coverage Reporting User Guide for QuickBooks.
To do this task:
- From the Employees menu, choose Manage Payroll Items > New Payroll Item.
- Select Custom Setup and click Next.
- Select Company Contribution and click Next.
- Enter a unique name for this new payroll item, which will appear on employee pay vouchers and pay stubs and on payroll reports (for example, "Reportable Health Coverage Cost" ). Click Next.
- Leave the agency information blank since this is a tracking and reporting item only, not a true liability item.
- Click the drop - down arrow next to the Liability account box, and select <Add New>.
- In the Add New Account window, choose Other Expense as the Account Type and create a new Account Name (for example, "Reportable Health Coverage"). Click Save & Close.
- Click the drop-down next to the Expense account box and select the new account you just created. (If you are creating more than one payroll item for tracking health care costs, continue to use this account for both the liability and expense accounts.) Click Next.
Setting both the liability and expense accounts the same creates a "wash" item that shows a zero amount on your Profit & Loss statements. This allows you to track your health care costs for W-2 reporting purposes without these numbers impacting your financial reports.
- Click Yes to ignore the warning that you have set your liability account and expense account to the same account.
- Click the drop - down arrow for the tax tracking type, and select the new tax-tracking type Health Coverage Cost. Click Next.
- Click Next to accept the default tax settings.
- Click Next to accept the default settings on the Calculate based on quantity page.
- Click Finish to accept the default settings on the Default rate and limit page.
Frequently Asked Questions
What amount is reported on the Form W-2 for health coverage? The amount the employer paid? The amount the employee paid? Or both?
What types of health care coverage must be included in the amount reported on the Form W-2?
Does the cost of an employee's health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?
Where can I find instructions for setting up a payroll item to track the cost of coverage?
Note: The information contained here is meant to provide general information about the payroll process and is not intended to provide tax or legal advice. Always consult your tax professional when preparing tax documents.
Note: Intuit Payroll is committed to keeping you up-to-date with your payroll service - making sure you have the latest information. We encourage you to revisit this article periodically for any updates and additional FAQs.