Starting in tax year 2012, the Affordable Care Act is requiring employers that file 250 or more Forms W-2 for the preceding calendar year to report the aggregate reportable cost of applicable employer-sponsored health insurance coverage provided on each employee’s annual Form W-2, in box 12, using code DD. Aggregate reportable cost does not include amounts contributed to a Health Savings Account (HSA), the amount of any salary reduction election to a health Flexible Spending Account (FSA), or the cost of coverage under a Health Reimbursement Arrangement (HRA). This reporting will be for informational purposes only and will not affect tax liability. Please note, there is already a separate W-2 reporting requirement for certain health savings account contributions.
Dependent care FSA contributions must be reported in Box 10.
The guidance currently gives transition relief for employers that file less than 250 Forms W-2.
Specifically noted in the legislation is the requirement that employer contributions to a health FSA (i.e. matching contributions and/or where the employer seeds the health FSA with funds) must also be reported in certain situations. The amount of a health FSA for a cafeteria plan year equals the amount of salary reduction elected by the employee for the plan year, plus the amount of any optional employer flex credits expressed as a fixed amount, or as a formula such as matching salary reduction, that the employee elects to apply to the health FSA. In determining the aggregate reportable cost, the amount of the health FSA is reduced (but not below zero) by the employee’s salary reduction election.
If the amount of salary reduction (for all qualified benefits) elected by an employee equals or exceeds the amount of the health FSA for the plan year, the employer does not include the amount of the health FSA for that employee in the aggregate reportable cost. However, if the amount of the health FSA for the plan year exceeds the salary reduction elected by the employee for the plan year, then the amount of that employee’s health FSA minus the employee’s salary reduction election for the health FSA must be included in the aggregate reportable cost and reported under 6051 (a) (14).
| Example | Total employee salary reduction contributions (including health FSA) | Employee salary reduction contributions to health FSA | Employer FSA contribution/flex credits(could be used for any qualified benefit) | Amount reported for health FSAon employee W-2 |
| 1 | $2,000 | $1,500 | $0 | $0 |
| Rationale: There are no employer flex credits applied to the health FSA, so no amount is reported for the health FSA. | ||||
| 2 | $2,000 | $1,500 | $1,000 | $0 |
| Rationale: The amount of employee’s salary reduction election ($2,000) for the plan year equals or exceeds the amount of the health FSA ($1,500) for the plan year, so no amount is reported for the health FSA. In this example, the $1,000 flex credit was not applied to the FSA, it was used for another qualified benefit. | ||||
| 3 | $700 | $700 | $700 (applied to the FSA using a matching $1 for $1 approach) | $700 |
| Rationale: The total amount of employee’s health FSA ($1,400) for the plan year exceeds the salary reduction election ($700) for the plan year. The employer must include $700 for the health FSA ($1,400 total health FSA amount minus $700 salary reduction) in the aggregate reportable cost on the W-2. | ||||
Comprehensive guidance on the W-2 reporting requirement may be found at:
http://www.irs.gov/pub/irs-drop/n-11-28.pdf