How Employers Report Pre-Tax Health Benefits to the IRS

IRS health care taxes

What You Need To Know:

Employers report the value of pre-tax health benefits to the Internal Revenue Service on your form W-2, the wage and tax statement. The total listed only provides information to the IRS and does not count as taxable income.

This reporting requirement started during filing year 2012 as part of the Affordable Care Act with the intention of providing employees with key comparison information that relates the full cost of healthcare coverage. 

health requirement tax

Pre-Tax Health Benefits:

Your workplace reports pre-tax health benefits in Box 12 of the W-2 form using code DD. Other items may be reported in one of four blanks for Box 12, so double-check the code before referencing this information. When you receive pre-tax health benefits from a former workplace, your employer only needs to send a W-2 listing your benefits if he is obligated to send the form for an alternate reason, such as to report wages paid earlier in the year. Employers must send out W-2 forms by the last day of the January following the close of the tax year. If you do not receive a statement and expected one, contact your employer to determine why a W-2 was not sent.

Not Required For Every Employer Just Yet.

The reporting requirement for pre-tax health benefits does not apply to every employer while the Affordable Care Act remains in a transition stage. If your employer sent out fewer than 250 W-2 forms for the previous tax year or shares a health plan with other businesses, your wage statement may not list your benefits. The IRS also offers other exclusions to the reporting requirement to employers offering select health programs. After the transition period passes and the IRS provides notice at least six-months in advance, all employers providing applicable sponsored coverage as part of a group health plan must comply with the reporting requirements. 

Only specific benefits need to be reported on the W-2, so you may not see a complete total for all of your employee perks. Your employer must report the cost of major medical coverage, including any portion you may pay through payroll deductions, as well as employer contributions to your healthcare Flexible Spending Arrangement. Hospital indemnity plan premiums paid pre-tax meet the reporting requirement as do premiums paid for a domestic partner included on your coverage. 

Your employer may also report optional items, such as a dental or vision plan or healthcare cost reimbursement arrangements, in your health benefit total. Even though these contributions appear on your W-2, your taxable income for the filing year remains the same, and you retain eligibility for all tax credits and deductions offered based on income. Your employer never reports your contributions to a healthcare Flexible Spending Arrangement or any contributions to a Health Savings Arrangement. After tax payments for hospital indemnity plans also avoid the reporting requirement as do many other insurance plans, such as liability insurance, supplemental insurance and workers’ compensation. 

After you receive your W-2, you can reference the total amount of your pre-tax health benefits to determine the full value of the medical benefits your employer provides. You can then add this total to the employee portion you pay on the same plans to determine total premiums. This allows for easier comparison shopping if you research alternative insurance coverage options on the open market.