W-2 Reporting of Employer-Sponsored Health Coverage
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The Affordable Care Act requires most employers to report the cost of coverage under an employer-sponsored group health plan. This document provides tips for setting up your payroll so that your W-2’s will correctly show the cost of the employer-sponsored health plan in Box 12 with the required code DD. In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees.
By setting up the employee and employer contribution for health insurance in the employee Misc Deductions the payroll program will automatically track and print the annual cost of employer-sponsored health insurance on the employees W-2.
If you are not sure that you are required to report the cost of coverage under your employer-sponsored group health plan please refer to the IRS guidelines at http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage.
If you have determined that you are required to report the cost, as long as you have at least one payroll to be processed for this year, you still have time to set-up your payroll to correctly report out your employer-sponsored group health plan on your W-2s for this year and future years!
To add the employee and/or employer health insurance premiums to the employee record mid-year:
Complete steps 1, 2, 3 & 4 on the following pages to add the deduction (contribution) to the employee record. When you are adding the deduction (contribution) amount you will enter the year to date amount paid instead of the monthly or per pay amount. After you process your next payroll you will need to edit the amount(s) in the misc. deduction tab to reflect the correct per pay or monthly amount for the remaining payrolls.
To add the annual employer health insurance premiums to the employee record:
Prior to running your last payroll for the year complete steps 1, 2 & 4 on the following pages to add the deduction (contribution) to the employee record. When you are adding the deduction (contribution) amount you will enter the annual amount instead of the monthly or per pay amount. After you process your last payroll, you will want to either inactivate the Misc Deduction or edit it for use in every payroll next year.
If you have already run your last payroll for this year you will need to manually calculate the annual expense for each employee and edit the W-2’s prior to printing. Please refer to “W2 Edit Employees” in the program help files.
Step 1 - Go to Payroll > PR Options > Earn/Deduct Codes.
Click on the List tab and scroll down to Deductions Before (Taxes): Insurance: Health Insurance (Employer). Double click anywhere in that row to select this deduction.
You will then be taken to the Data Entry Tab for that deduction.
Select the Vendor for your Health Insurance provider. If the W2 Code, DD, is not already in Box 12, add that as well. Click Save and then close the dialogue box by clicking on the red X in the upper right hand corner.
Step 2 - Go to Payroll > Employees
Select the employee you wish to add the Health Insurance (Employer) contribution to.
Go to the Misc. Deductions Tab, then click Add.
Complete the deduction information.
Tax Type: Deductions Before Taxes
Deductions Tax Type: Health Insurance (Employer)
(The vendor will automatically fill because you added this information to the Deduction Code in STEP 1)
GL Acct #: Select your expense account for Health Insurance
Deduct How: Use D-Dollar to enter the employer share of this employees health insurance premium
Amount or Percentage: Enter the dollar amount of the employer share of the monthly premium
Flat/Limit/Over: F=Flat, L=Limit, and O=Over; typically this would be a flat amount
Deduct When: Typically this would be once per month. If you choose something other than once per month you will also need to adjust the dollar amount withheld accordingly.
Employer Contribution: This box must be checked to show up as an employer contribution.
After completing the Misc Deduction details click OK. Because this is an employer contribution it will appear on the grid in green.
Step 3 - If there is an employee contribution, you will need to add this deduction as well. Assuming the deduction is a before tax deduction you will use the Tax Type: Deductions Before Taxes and Deductions Tax Type: Health Insurance for the employee share of health insurance. Image
If the employee deduction is an after tax deduction you will need to use the Tax Type: Deductions After Taxes and the Deductions Tax Type: Insurance. (Remember to add the Vendor and W-2 Code per the instructions in STEP 1 above.)
Step 4 - When you process payroll the deductions will automatically be added the employees payroll history and the total health insurance costs will correctly display on the employees W-2 in Box 12. Note when you process payroll an Accounts Payable Transaction will also be automatically created for the health insurance premiums. If you have already entered a manual Accounts Payable transaction for this you may delete this transaction.
Year End Verification
How to verify the amount you have posted in the employees record agrees with your general ledger account(s) and/or your health provider’s annual recap.
After you have posted your last payroll and paid your final health insurance premium for this year go to Payroll, on the Ribbon Menu in the Reports section
select Employee Reports>Earnings/Deductions List.
Select the option for all employees and date range starting January 1 and ending December 31, then click Next.
Select the Earnings/Deductions Type of Health Insurance (Employer) and check Employer Deductions.
Click Next and then Print.
Note: If you also have employee deductions repeat this process using the Earnings/Deductions Type of Health Insurance with the Employer Deductions unchecked.
Next go to General Ledger > View Accounts and select the expense and or liability accounts for your employees health insurance, print the report and total the amounts related to each employees insurance.
It may be helpful to export this report to Excel so you can easily sort and total by employee.
Compare the totals from your ledger to the totals on the Employer Deduction Report(s).
Note: Your Health Insurance provider may also be able to provide you with the annual cost of each employee’s health plan. If the totals on the Employer Deduction Report(s) do not agree with the ledger and or health plan providers recap, you may use the Edit Payroll Check History to correct this amount.
IMPORTANT: Edit only the employer contribution amount, as editing the employee deduction will impact the amount of the net check in the payroll history.
If you need to make corrections or changes to your employee deductions we recommend you request Professional Services assistance. Please contact the Support Department or your Sales Representative for the current Professional Services hourly rate.