As you may have noticed, for many of you the health insurance benefit provided by your employer is showing up on your W-2 this year. That is required for employers with more than 250 employees in 2012. It goes in Box 12 with code DD.
So what does it mean? Well, it means nothing. It doesn’t increase your wage income, it’s not tax deductible for you as a medical expense, it means nothing. Well then why are they putting it on there? One reason is just for greater transparency. Most employees don’t really know how much their employer-provided health benefits are – I know I certainly have no idea.
The health care bill that was passed two years ago essentially mandates health insurance for everyone in 2014. The way it’s mandated is through a tax. There is a fine / tax / fee / penalty (whatever you want to call it) that you will pay on your individual tax return if you do not have health insurance. Having the employer-provided health benefits listed on the W-2 is one way for the IRS to confirm whether you were covered or not.
There is also going to be an excise tax on excessive or the Cadillac health plans in 2018. That excise tax is based on the value of the policy, so reporting the value of the benefits to the IRS is how that will be administered. Single policies over $10,200 and family policies over $27,500 are indexed for inflation and have a few exceptions, but that is the general idea. With the health insurance reported on the W-2s, it will make it easier for all of these new laws to be implemented – both for taxpayers and for the IRS.