Are Employers Required To Report Health Insurance On W-2? | Code DD Explained

Most employers list the total cost of employer-sponsored coverage in Box 12 (Code DD); it’s for info and not taxed.

If you’ve ever scanned your W-2 and spotted a number next to “DD,” you’ve already seen the answer in action. Many employers report the cost of employer-sponsored health coverage on the W-2, even though it doesn’t change your taxable wages.

Still, the rule has a few moving parts. Some employers get transition relief. Some types of coverage get counted. Others don’t. If you’re a payroll admin, a small business owner, or an employee trying to make sense of Box 12, this walkthrough will help you pin down what’s required, what’s optional, and what the number actually means.

What “Reporting Health Insurance On A W-2” Means

When people ask whether health insurance must be “reported,” they’re usually talking about one specific item: the cost of employer-sponsored health coverage shown on the Form W-2 in Box 12 with Code DD.

This is an informational figure. It’s there to show the cost of coverage, not to add taxes. The IRS states that Code DD reporting does not make the coverage taxable to the employee. You’ll see the same message in the IRS’s own Q&A: the reporting is meant to provide useful, comparable cost information, not to turn excluded coverage into wages.

Two quick clarifiers help prevent bad assumptions:

• Code DD is not a deduction. It doesn’t lower taxable income.
• Code DD is not extra wages. It usually does not increase Boxes 1, 3, or 5.

Health Insurance Reporting On Form W-2 With A Clear Rule Set

The Affordable Care Act added a requirement for many employers that provide “applicable employer-sponsored coverage” under a group health plan. If an employer is subject to the requirement, the value of coverage is reported in Box 12 using Code DD.

The IRS lays out the core requirement and a coverage chart on its page about
Form W-2 reporting of employer-sponsored health coverage.
That page also notes a point that trips people up: employers report the amount on the W-2, and there’s no matching total on Form W-3 for these Code DD amounts.

On the mechanics side, the IRS W-2 instructions also treat Code DD as a standard Box 12 code and repeat two practical points: the amount is not taxable, and extra reporting guidance sits in IRS ACA materials. You can cross-check that in the
General Instructions for Forms W-2 and W-3.

Who Has To Report Code DD

Under IRS guidance, employers that provide applicable employer-sponsored coverage under a group health plan are subject to the reporting requirement. The IRS includes businesses, tax-exempt organizations, and federal, state, and local government entities, with stated exceptions for certain military-related plans. Federally recognized Indian tribal governments are not subject to the requirement.

There’s also a practical “size” carve-out through transition relief. The IRS Q&A explains that employers that file fewer than 250 Forms W-2 for the preceding calendar year fall under transition relief until further IRS guidance changes that status. That Q&A also notes that the W-2 count for this relief is determined without aggregating related employers under controlled-group rules.

If you want the exact wording and the way the IRS frames the relief, see the
Employer-Provided Health Coverage Informational Reporting Requirements: Questions and Answers.

What Amount Gets Reported

In general, the Code DD number includes both the employer-paid portion and the employee-paid portion of the coverage cost. That means the figure can look “high” if you’re thinking only about what came out of a paycheck. It’s meant to reflect the full cost of coverage under the plan, not only the employee share.

When an employer calculates the cost, the method depends on plan type. Fully insured plans often track premiums. Self-insured plans may use a method aligned with COBRA premium concepts. The IRS allows reasonable methods when interim rules apply, as long as the approach is used consistently.

Why The IRS Put This On The W-2

Code DD exists so employees can see a standardized cost figure for their coverage. It can help when comparing plan options during open enrollment, or when reviewing total compensation.

It also cuts down confusion when employees see a benefit that feels “free.” Employer-paid coverage can be a large slice of total compensation, even when payroll deductions are modest.

What Must Be Included In Code DD

This is where many payroll teams slow down. “Health insurance” can mean medical, dental, vision, HRA, on-site clinic access, EAP benefits, wellness arrangements, FSAs, HSAs, and more. Not all of it belongs in Code DD.

The IRS publishes a coverage-type chart and labels items as “report,” “do not report,” or “optional” under transition relief. The official chart lives on the IRS page linked earlier, and it’s worth mirroring into your own payroll checklist so the same items get treated the same way year after year.

Below is a practical summary table that aligns with the IRS categories and the way most employers handle Code DD in payroll workflows.

Coverage Type	Include In Code DD	Notes For Payroll Setup
Major medical (group health plan)	Yes	Core item; include employer share and employee share.
Prescription drug coverage under the plan	Yes	Often bundled with major medical; include as part of the plan cost.
Dental or vision integrated into medical	Yes	If treated as part of the medical plan, it’s commonly included.
Standalone dental or vision (separate plan)	Often No or Optional	IRS chart treats certain standalone arrangements as not required or optional under relief; document your approach.
Employee Assistance Program (EAP)	Optional in some cases	May be optional under transition relief if it does not qualify as group health plan coverage in a given setup.
Health FSA funded only by salary reduction	No	Salary-reduction-only health FSA amounts are not included in Code DD under IRS interim rules.
Health FSA with employer contributions	Sometimes	Employer flex credits may affect reporting; follow IRS interim rules for the reportable portion.
HSA contributions	No (for Code DD)	HSA contributions have their own W-2 code (often Code W); do not roll into Code DD.
Retiree coverage when no W-2 is otherwise required	No	Employers don’t issue a W-2 just to show Code DD for retirees not otherwise receiving a W-2.

When Reporting Is Optional Or Not Required

Not every employer is forced into Code DD reporting right now. The IRS has kept transition relief in place for certain employers and certain coverage types until additional guidance changes the scope. That relief is not a loophole; it’s a stated IRS position that continues until the agency publishes updated guidance with lead time.

Transition Relief For Smaller Employers

If an employer files fewer than 250 Forms W-2 for the prior calendar year, the IRS describes that employer as eligible for transition relief for Code DD reporting. In plain terms: many smaller employers may choose to report Code DD, but they are not required to do so under the transition framework as described in the IRS Q&A and in the underlying notice.

For the detailed interim rules that the IRS cites again and again, the backbone document is
Notice 2012-9.
It restates and amends interim guidance, including how the relief applies and how certain edge cases are handled.

Coverage Types With Special Treatment

Some benefits sit near the line between “group health plan coverage” and benefits that don’t fit the Code DD bucket. That’s why the IRS chart splits items into required, prohibited, and optional categories depending on coverage design and transition relief.

If you’re building payroll logic, two habits save time later:

• Write down what your plan is. “We include integrated dental and vision” is a simple line that prevents year-to-year drift.
• Match payroll coding to plan documents. If a benefit is a separate plan, treat it like one in reporting logic.

What Employees Should Do With The Code DD Number

For employees, the Code DD figure is mostly a “read it and file it” item. It’s useful context, not a line you copy into your tax return. Many tax software flows ignore it because it does not affect federal taxable wages.

Still, it can answer common questions:

• “Did my employer pay for my coverage?” Code DD reflects the full cost, including employer-paid portions.
• “Did my taxes go up because of Code DD?” Code DD is informational and does not make excluded coverage taxable under IRS guidance.
• “Why did it change from last year?” Plan pricing changes, coverage tier changes, or switching from employee-only to family coverage can move the number.

Why The Number Can Look Higher Than Payroll Deductions

Payroll deductions show only what you paid through payroll. Code DD shows the plan’s cost of coverage, which includes the employer share. If your employer pays most of the premium, Code DD can dwarf your annual payroll deductions. That’s normal.

What Code DD Does Not Tell You

Code DD is not a statement of claims paid, out-of-pocket costs, deductible levels, or network quality. It’s a cost figure for coverage, not a measure of care used.

Common Employer Scenarios That Affect W-2 Health Coverage Reporting

Most payroll runs are straightforward: a single employer, a single plan, an employee enrolled all year. Real life is messier. People join mid-year, leave mid-year, switch coverage tiers, move between related employers, or ask for an early W-2.

The IRS Q&A addresses many of these patterns and gives employers room to apply a consistent, reasonable method under interim rules. Here’s a scenario table you can use as a quick triage map when you’re reconciling Code DD values before W-2s go out.

Situation	What You’ll Often See On The W-2	Practical Payroll Check
Employee enrolled all year	Full-year cost of the elected tier under Code DD	Confirm the plan-year cost matches payroll/benefits system totals.
Mid-year hire with coverage starting later	Prorated amount based on months or pay periods covered	Check effective date and waiting period rules in the benefits system.
Mid-year termination with COBRA election	Employer may include some post-termination coverage using a consistent method	Verify your system’s termination and COBRA tracking aligns with your reporting method.
Employee switches from employee-only to family	Combined cost reflecting time in each tier	Confirm tier change date and ensure no overlap or gap in calculations.
Employee requests an early W-2 before year-end	IRS interim rules allow leaving Code DD blank on that early W-2	Track the request in writing and retain a record of the early issuance.
Retiree coverage with no other wages that require a W-2	No W-2 issued just to show Code DD	Confirm whether a W-2 is otherwise required for the person.

Payroll Steps That Prevent Code DD Errors

Code DD errors rarely come from math. They come from mismatched systems and unclear rules around what counts as reportable coverage. A clean workflow keeps this from turning into a January fire drill.

Step 1: Match Coverage Categories To IRS Rules

Start with the IRS coverage chart and label each benefit in your offering: major medical, prescription, dental, vision, EAP, on-site clinic, HSA, FSA, HRA, and so on. Then mark each one as “include,” “don’t include,” or “optional under relief,” based on how your plans are structured.

Step 2: Pick A Method And Use It Consistently

The IRS allows reasonable methods in some situations under interim rules. Choose a method that your systems can reproduce without manual patches. Then stick to it year to year unless a policy change forces a shift.

Step 3: Reconcile Before W-2s Go Out

Run a sample output early. Spot-check a mix of employees: someone with employee-only coverage, someone with family coverage, a mid-year hire, and a mid-year termination. If the amounts look off, trace the issue back to eligibility dates or coverage tiers before the bulk run.

Step 4: Train Your Front Line On What Code DD Means

Most employee questions are predictable: “Is this taxable?” “Did I pay this?” “Why did it change?” A short internal script based on the IRS Q&A cuts repetitive tickets and keeps answers consistent.

Answering The Core Question Without The Confusion

So, are employers required to report health insurance on the W-2? For many employers, yes: the IRS expects the cost of applicable employer-sponsored health coverage to appear in Box 12 under Code DD. Some employers and some coverage types fall under transition relief until the IRS issues updated guidance with lead time.

If you’re an employee, treat Code DD as a useful label, not a tax trigger. If you’re an employer, treat Code DD as a reporting job that depends on coverage design, W-2 volume, and consistent payroll setup.