Should employer-paid health care benefits be reported on every W-2?
Updated: May 18
Q. I am retired but I get a W-2 for a small amount, but it is subject to Social Security, Medicare and other taxes just as I was still employed. The amount is for the cost of employer-paid life insurance over $50,000. It also shows an amount of about $14,000 that the company paid for health care but is not taxable. My friends who do not get this benefit don’t get a W-2. Why aren’t all retirees on pensions and getting health benefits advised of their employer’s cost for health care?
A. Let’s take a look at all the pieces here.
First, employers frequently provide group life insurance for their employees and retirees as a benefit.
The federal government allows these payments to be tax deductible to the employers and tax-free to the employee as long as the insurance coverage is for $50,000 or less, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
“If the life insurance coverage is for more, the amount in excess of $50,000 is fully taxable to the employee as if the amount was a cash payment,” he said. “This is why you continue to receive a W-2 from your former employer so you can report the income on your tax return.”
Now about the cost of your medical insurance.
Kiely said you are aware of the amount your former employer is paying for your medical insurance because your former employer is required to issue you a W-2.
“The Affordable Care Act, also known as Obamacare, requires employers to report the cost of coverage under an employer-sponsored group health plan,” he said. “Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable.”
The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee's income, and it is not taxable, Kiely said. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.
So what about your friends?
“An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2,” he said. “This is why your retired friends who do not have company paid life insurance coverage in excess of $50,000 do not receive a W-s form. The company is not required to issue one if there is no taxable income.”
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Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.