The 2009 health care law, the Affordable Care Act (ACA), includes several provisions relating to reporting of health care benefits by employers to employees.
Some of the requirements are for all employers, and some additional requirements are for larger employers. The IRS administers the processes and reports under this law.
Employer Reporting Requirements for Employee Health Benefits
All employers must report the cost of employer-provided health benefits to employees on Form W-2, and file W-2 forms for all employees with the Social Security Administration.
In addition, large employers (as defined by the IRS) must give an annual report to employees on form 1095-C and file that report with the IRS.
Reporting Requirements for All Employers
The IRS requires all employers to report the cost of health care coverage to employees in Code DD on the employee form W-2, the annual wage report distributed to employees and filed with the Social Security Administration each year.
Enter the amount of this health care coverage on the employee's W-2 form, specifically using Code DD, which is the cost of employer-sponsored health coverage. Report both the part paid by your company and by the employee.
When reporting, include the value of any medical, dental, and vision coverage you may pay for. Include both the employer and employee portions of the cost; in other words, the total cost of the plan, no matter who pays for it.
You don't have to issue a W-2 if the health care information in Code DD is the only thing you're reporting, like to a retiree, for example.
If you forgot to include the cost of health care benefits on employee W-2s, you will need to file W-2c forms to correct this error.
The IRS has a helpful chart that shows all the types of health coverages that must be included in the total on Form W-2.
Taxes and Healthcare Benefits
Before you calculate employee health care benefits and enter them in Code DD of Form W-2, you'll need to know what's taxable to the employees.
Costs paid by employers for health insurance are not taxable to the employees, for either federal income taxes or FICA taxes (Social Security and Medicare). These benefits are also not considered as wages for unemployment tax purposes. (There are special requirements for S corporation employees.)
Be sure to let employees know that the amount in Code DD doesn't affect their taxes. The report is for information purposes only, to show employees the value of their health care benefits.
Reporting Requirements for Large Employers
What Is a Large Employer?
The IRS calls large employers Applicable Large Employers (ALEs), meaning that they must comply with specific ALE reporting requirements for Affordable Care Act purposes. Your business may be an ALE one year and not the next because the requirement is determined every calendar year, depending on the average number of employees for the previous year.
If your business has 50 or more full-time equivalent employees, you are considered an "Applicable Large Employer" (ALE) for the purpose of reporting and for the purposes of Employer Shared Responsibility.
Full-time employees are considered those who work, on average, at least 30 hours per week. If you have part-time employees, you combine hours of part-timers to get what's called a full-time equivalent number of employees.
Large Employer Responsibilities under ACA
If your business is an ALE, you must do one of the following.
- Offer "affordable" health care coverage to full-time employees. That coverage must provide "minimum value."
- Make an employer shared responsibility payment (ESR) to the IRS. This payment must be made if at least one full-time employee receives a premium tax credit for buying individual coverage on a health care exchange.
What Large Employers Must Report to Employees
Here are the details on what you must report to employees and when.
- A statement to employees about health insurance coverage offered to employees. This statement, on IRS Form 1095-C, must be (a) given to each employee on and (b) reported to the IRS.
- If your business self-insures its health care plan, you must provide a statement to the IRS about this coverage. You will need to use Section III of the 1095-C form for this purpose.
Filing 1095-C Forms Electronically
If you are filing fewer than 250 of the 1095-C forms with the IRS, you don't have to file them electronically. If you are filing more than 250 forms, you must file them electronically.
The IRS has a special user interface system for the Affordable Care Act Information Returns that you can use.
Reporting Deadlines for 1095-C
Reports on Form 1095-C are due for the previous calendar year. For example, the form needed to be filed with the IRS by February 28, 2019, for 2018. Be sure you are using the correct form for the year you are reporting, not the year when you are completing the form.
Reporting to employees: You must give each employee a copy of Form 1095-C for the preceding calendar year by January 31.
Reporting to the IRS: IRS Form 1095-C must be filed with the IRS before February 28 (March 31 if filed electronically).
Form 1095-C Details
Form 1095-C requires the following information.
- Employee name, address, and tax ID number
- Employer name address, contact information, and EIN
- Employee offers of coverage, total year and month by month
- Employee required contribution, total year and month by month
- For self-insured plans—covered employees, identification, and months of coverage
The instructions for Form 1095-C give more details on the requirements for this form.
The information about employer requirements of the Affordable Care Act is complicated and still changing, and each business situation is unique. Check with your tax, insurance, and legal advisors before you implement any of these reporting requirements.