At this point in time, it is clear that reporting the value of health benefits on the employee’s W-2 does not create a tax liability. But why is this reporting necessary? The IRS Notice states “This reporting to employees is for their information only, to inform them of the cost of their health care coverage.”
This may be good information, but the idea of reporting this amount on Box 12 of the W-2, code DD, seems like a really oblique way to inform employees of the value of their health care coverage.
If the true ultimate purpose for reporting of the value of health benefits is to inform employees of the cost, why does it take an IRS notice and a couple of dozen questions and answers to explain how to do that? And who cares if an individual who leaves a company mid-year gets the information or not or if the FSA contribution exceeds any employer contribution?
Communicating this information can be done much easier and less expensively than involving the federal government, the IRS and the W-2. Many employers already communicate this information and in far more creative ways.
Clearly the true purpose of this reporting is not simply enhanced employee education. It may relate to the excise tax on so-called Cadillac plans down the road or it may be intended to get an accurate projection of federal revenue if all or a portion of the amount becomes taxable. I have no idea, but I do know employers don’t need this additional administrative burden to communicate to their employees.
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