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Payroll Tip – Health Insurance Tracking Requirements for 2012

Published December 14, 2011 | By Nancy Smyth

Payroll is a complex part of every bookkeeper’s job, new requirements for 2012 include showing company paid health insurance premiums on employees W-2’s; making things even more complex. See this question asked by a reader of our blog.

I have a question that I’ve been searching for an answer to, I’ve even asked our Tax Accountant about it. In 2012 it is mandatory that we show the company share of employee health insurance on W-2’s, do you know if there is there a way in QuickBooks to track this on a regular basis, so that it shows on the employees paystubs and then have it flow through onto the W-2 at the end of the year? Thanks, Kathleen S.

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Answer:

Hi Kathleen,

Yes, you can set QuickBooks up to track employer paid health insurance contributions, have those contribution amounts appear on employee pay stubs and then have the full yearly contribution appear on the employee’s W-2. I’ve been doing this for a long time – thankfully the QuickBooks payroll module is pretty flexible, the hardest part is the setup – and then the maintenance.

As of this date {12/14/2011} Intuit has not yet released an update to their Enhanced Payroll subscription to include W-2’s for wages paid in 2011; rumor has it that the update will be available by the 10th of January. We will be updating not only this post but the video as well as new information becomes available.

Important things to take into consideration prior to setting up QuickBooks to track this information – OR the planning stages:

Health insurance premiums for all employees are usually paid on a monthly basis in one lump sum made up of a specific amount for each employee based on the type of plan or coverage each employee has. The chances are that you pay your employees more often than that – so you want to set up a method of tracking company contributions for health insurance based on how often you pay your employees – so that the contribution is done automatically for you when you run your payroll rather than having to “remember” to do something once a month.
Will the company pay 100% of the cost of health insurance or will the employee also pay a portion through a payroll deduction?
How many pay periods your company actually has during the year.
When does your company health insurance policy renew?
Will you also be using/taking credit for company paid health insurance against the full fringe benefit amount that must be paid when employees work on prevailing wage jobs?

We’ve put together a video demonstrating the required QuickBooks setup and a free Excel Spreadsheet for tracking the costs of 100% company paid health insurance.

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Information from the IRS regarding Employer Paid Health Insurance Reporting:

Employer-Provided Health Coverage — Not Taxable; Reporting is Voluntary for All Employers for 2011 and Small Employers for 2012

Starting in tax year 2011, the Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. To give employers more time to update their payroll systems, Notice 2010-69, issued last fall, made this requirement optional for all employers in 2011. IRS Notice 2011-28 provided further relief for smaller employers filing fewer than 250 W-2 forms by making the reporting requirement optional for them at least for 2012 and continuing this optional treatment for smaller employers until further guidance is issued. Notice 2011-28 also includes information on how to report, what coverage to include and how to determine the cost of the coverage.

The 2011 Form W-2 is available for viewing on IRS.gov. This is the W-2 that most employees will receive in early 2012. The form includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. {Currently, as of 12/12/2011, you will report Health Insurance Costs in Box 12 of the W-2 using code DD}.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.

What types of health care coverage must be included in the amount reported on the Form W-2?

A. Employers are required to report the total cost of all “applicable employer-sponsored coverage” provided to an employee. For any employee, “applicable employer-sponsored coverage” is coverage under a group health plan that the employer makes available to the employee that is non-taxable to the employee (or that would be non-taxable if the coverage were employer-provided).

Certain types of coverage are excluded from the definition of applicable employer-sponsored coverage and are not included in the amount reported. These types of coverage are:

(1) coverage for long-term care;

(2) coverage for the following HIPAA “excepted benefits”:

coverage only for accident, or disability income insurance, or any combination of these coverages;
supplemental liability insurance;
liability insurance (including general liability insurance and automobile liability insurance);
workers’ compensation or similar insurance;
automobile medical payment insurance;
credit-only insurance; and
other similar insurance coverage specified in regulations, if the benefits for medical care are secondary or incidental to other insurance benefits.

(3) any coverage under a separate policy, certificate, or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye; and

(4) coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance, if the employee pays the premiums for the coverage on an after-tax basis.

In addition, employers should not include the following amounts in calculating an employee’s total cost of coverage:

(1) the amount contributed to any Archer MSA;

(2) the amount contributed to any Health Savings Account; and

(3) the amount of any salary reduction election to a flexible spending arrangement (FSA).

For additional information on this topic, visit these links:

Affordable Care Act Tax Provisions – http://www.irs.gov/newsroom/article/0,,id=220809, 00.html
2011 Form W-2 – https://www.irs.gov/pub/irs-pdf/fw2.pdf
IR-2011-31 – https://www.irs.gov/newsroom/article/0,,id=237870,00.html
Notice 2010-69 https://www.irs.gov/pub/irs-drop/n-2010-69.pdf
Notice 2011-28 https://www.irs.gov/pub/irs-drop/n-11-28.pdf
Employer-Provided Health Coverage Information Reporting Requirements – Q & A – https://www.irs.gov/newsroom/article/0,,id=237894,00.html
IRS YouTube Video – Health Care: W-2 Health Insurance Reporting – https://www.youtube.com/watch?v= TFepqFnEj5I&feature= youtu.be
IRS Webinar – Reporting of Employer Healthcare Coverage on Form W-2 – https://www.irsvideos.gov/ReportingEmployerHealthcareCoverage/
New Info added 1/3/2012 – IRS Notice 2012-09 – https://www.irs.gov/pub/irs-drop/n-12-09.pdf – Interim Guidance on Informational Reporting to Employees of the Cost of Their Group Health Insurance Coverage

We hope that you’ve found this post informative, if so please take a moment to leave a comment or share it on your favorite social network.

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Update 12/16/2011 – Intuit Releases Payroll Update 21201

Late yesterday afternoon Intuit released Payroll Update 21201, which includes revised tax tables and several form updates. Included in this update is the option for reporting Health Insurance under Code DD on employee W-2’s.

When creating or editing an existing Company Contribution item type for Employer Paid Health Insurance, when you get to the Tax Tracking Type window, from the drop down list, select Health Coverage Cost, as shown in the screenshot below:

Right click on the image to enlarge it

We will be updating our video by the first of the year to reflect the actual selection of the correct tax tracking type.

2 Responses to Payroll Tip – Health Insurance Tracking Requirements for 2012

About Your Host:

Nancy Smyth, Sunburst Software Solutions, Inc.
QuickBooks Construction & Payroll Expert

I've been using and supporting QuickBooks products since the early 1990's. I've worked with thousands of contractors, assisting them with QuickBooks setup, Certified Payroll Reporting requirements, AIA Billing and Weighted-Average Overtime.

QuickBooks is a powerful product, but learning how to use it in your construction business can be difficult. I hope you find resources available here to be helpful.