W-2 Box 12 Code DD: Reporting the Cost of Health Coverage
The ACA requires the cost of employer-sponsored health coverage to appear on each employee’s Form W-2. The figure is informational, but the requirement and its relief for smaller filers are often misunderstood.
What Code DD Is
The requirement comes from section 6051(a)(14) of the Internal Revenue Code, added by the Affordable Care Act.
Where It Appears
In Box 12 of Form W-2, using Code DD, as the cost of coverage under an employer-sponsored group health plan. Employees will usually find it in the numbered boxes on the right side of the form, labeled with the letters DD. The figure reflects the combined cost of the coverage, including both the employer share and the employee share.
It Does Not Create Tax
The IRS states the amount does not affect tax liability. The value of the employer contribution stays excludable and is not taxable. The reporting is for information, to show employees the value of their health benefits. The amount is not extra income. Employees do not owe more tax because of it, and nothing in their pay changes. Consider a short note in year-end materials so employees understand it is a statement of value, not a bill.
Employees Do Not Report It
Employees do not have to report the Code DD amount on their own returns. Employees do not need to enter the figure on their tax return or add it to their income. If someone is unsure how their own return is affected, they should check with a tax adviser.
Not The Same As 1095-C
Code DD is a W-2 figure for the employee’s information. The ACA employer mandate reporting on Forms 1094-C and 1095-C is a separate requirement. See our ACA reporting guide.
Where The Number Comes From
Carriers and administrators generally supply the cost figures. Payroll then maps them to Box 12. Confirm the source with your payroll provider. Plan costs are usually set by the carrier or administrator, and payroll maps them to the right employees. Ask for a clear process in January, so late changes in coverage or rates do not create errors on the forms.
Why Employees Ask
Many employees see a large figure in Box 12 and assume it is taxable. A short note in year-end communications prevents the calls. Many employees notice the figure when they see their W-2 in January and wonder whether their taxes went up. Put a plain sentence in the year-end message and train HR or payroll staff to explain it.
Who Has Been Excused
The IRS gave transition relief while it works on final guidance, and that relief has continued.
Smaller Employers
Employers required to file fewer than 250 Forms W-2 have had transition relief from reporting the cost of coverage (Notice 2011-28), which the IRS said would continue until further guidance. Employers that file fewer than the threshold number of W-2s have not been required to report, based on IRS relief. Check the current position with payroll and a tax adviser each year, since relief can change.
The 250 Count
The count is of Forms W-2 the employer is required to file, not of employees covered by the health plan. The test counts the W-2s the employer is required to file for the year, which can differ from headcount. Part-year and former employees may be included, so ask payroll for the actual count rather than estimating.
Relief Is Not Exemption
Relief is not a permanent exemption. Confirm the current IRS position on the Form W-2 reporting page before relying on it. Employers should not assume the relief will continue indefinitely. Review the IRS guidance each year, and talk with a tax adviser if your W-2 count is close to the threshold or may grow.
Voluntary Reporting
Employers that are not required to report may choose to, which is common because payroll systems support it. Many payroll systems can report the cost automatically, and employers sometimes choose to include it for consistency across the workforce. Check the setup with payroll, because voluntary reporting still needs to be done accurately.
Ask Payroll Which Applies
Whether you are required to report or are relying on relief, have payroll confirm in writing which applies to your W-2 filing count. Ask payroll for a short written note confirming whether the employer is reporting, why and based on what count. That note helps in future years and when staffing changes in the payroll or HR team.
Document Your Position
If you rely on relief, keep a note of the filing count and the guidance relied upon. A short internal memo showing the W-2 count, the guidance relied upon and the date reviewed is enough. Update it each year so the position stays current, and keep it with the other payroll compliance records.
Getting Box 12 Right
A short list for payroll and HR.
Collect Plan Costs Early
Ask carriers and administrators for the cost figures well before January. Contact carriers and any third-party administrators in the fall, and ask for the final cost figures by coverage tier. Keeping the request on the year-end calendar helps avoid a scramble just before W-2 deadlines.
Check The Code
Make sure payroll is using Code DD and not another Box 12 code. Payroll systems offer many codes in Box 12, and entering the amount under the wrong one can confuse employees and cause questions. Review a sample W-2 before the forms go out to confirm the code is right.
Reconcile To Plans
Spot-check a few employees’ figures against their coverage tier. Pick a few employees from different coverage tiers and compare the W-2 figure against their elections and the plan cost sheet. Small differences can point to a mapping error that is easier to fix early.
Prepare Employee Communication
Add a sentence explaining that the number is informational. Include a line in year-end messages, open enrollment materials or an HR FAQ saying the number is for information and does not change taxable pay. A consistent message cuts down on calls to HR and payroll.
Calendar It
Add W-2 distribution to the year-end calendar. See the compliance calendar.
Coordinate With 1095-C
If you are a large employer, keep payroll and benefits data consistent across the two reports. Larger employers file both reports, and the plan data behind them should be consistent. Have benefits and payroll compare enrollment, coverage dates and plan costs before filing, and ask counsel or a tax adviser about differences.
Questions We Get About Code DD
Is Code DD taxable income?
No. The IRS says the amount does not affect tax liability and is informational.
What is Code DD?
The Box 12 code for the cost of employer-sponsored group health coverage.
Do small employers have to report it?
Employers required to file fewer than 250 W-2s have had transition relief. Confirm the current IRS position.
Which law requires it?
Section 6051(a)(14) of the Internal Revenue Code, added by the Affordable Care Act.
Do employees put it on their tax return?
No. Employees do not have to report the amount.
Is it the same as the 1095-C?
No. They are separate reporting requirements with different purposes.
Who calculates the figure?
Usually the carrier or administrator supplies cost data and payroll reports it.
Where do we confirm current rules?
The IRS page on Form W-2 reporting of employer-sponsored health coverage.
Is this legal advice?
No. This page is general information, not legal advice. Rules change and facts differ, so confirm your situation with your attorney or tax advisor.
Related Guides
Related reading: ACA 1094-C and 1095-C Reporting · HSA, FSA and Section 125 Limits · Michigan Compliance Calendar · Reading Your Plan Documents · Employer Contribution Calculator
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Laws and rules referenced
26 U.S.C. § 6051(a)(14) — Employers report the cost of employer-sponsored health coverage on Form W-2, box 12, code DD.
IRS Notice 2012-9 — Guidance on reporting health coverage cost on Form W-2 (informational only).
This page is general information, not legal or tax advice. Rules change and facts matter, so confirm your situation with counsel or a qualified advisor.
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