Readers brought up some good comments about my Thursday column on the provision in the Affordable Care Act that requires most employers to begin reporting the cost of employer-provided health care on their W-2 forms, starting with W-2 forms issued for 2012.

The cost, reported in Box 12 with the code DD, includes both the employer and employee share of health insurance premiums for the year. It might or might not include dental and vision care premiums depending on how the employer packages benefits.

Some employers were exempt from the requirement for 2012 W-2s including those who filed fewer than 250 W-2s in 2011.

The reporting does not create any new tax liability; it's for informational purposes only (although many think Congress might attempt to tax at least some of it). The reporting requirement is supposed to help employees appreciate and understand the value of their health benefits.

In my column, I said the employee pays no income tax on the amount reported in Box 12 and that employees pay their share of premiums with pretax dollars.

While that's true in most cases, there are exceptions.

If employees cover a domestic partner or same-sex spouse, the value of the partner/spouse's coverage (less any after-tax payments made by the employee) is generally added to their income and they pay federal tax on it. The cost of the spouse/partner's coverage is included in the DD amount, but the reporting does not create any additional tax. (Taxation of partner/same-sex spouse benefits at the state level varies.)

And while many employees get to pay their share of health insurance premiums with pretax dollars, many don't.

If an employer sets up a 125 plan, employees can pay for health care premiums with pretax dollars. This plan, also called a cafeteria plan, is named after the section of the tax code that lets employees pay for a variety of benefits with pre-tax dollars if their employer sets one up. Employers can set up a premium-only 125 plan that shelters just health care premiums.

If the employer does not set up a 125 plan, employees pay their premiums with post-tax dollars.

See the original post here:

Health care premiums sometimes taxed