Report Employee Health Care Benefits

Employers are required to report the value of each employee's health care benefits (including medical, dental, and other coverage), on the W-2 form.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage is excluded from an employee's income and is not taxable.

These best practices for routine record keeping will help you satisfy the government standards, simplify your year-end processing, and provide information to management.

Overview

Spectrum provides a means for recording benefit information by individual when you take advantage of employee deduction and add-on codes.

There are essentially four important parts to tracking benefits by employee:

  • Set up add-on codes for each benefit provided.
  • Record the monthly benefit amount paid on behalf of each employee, and include a monthly limit. Process Payroll.
  • Run the Add-on History Report at the end of the month, look for exceptions, and make sure the benefit total matches the A/P invoice for the actual benefits paid.
  • Clear the month-end Payroll totals.

PART 1: Set up add-on codes for each benefit

  • In Payroll > Maintenance > Deduction/Add-on Code Maintenance, select New and create a new fixed amount add-on for each benefit type. For example, B1 = healthcare, B2 = dental, B3 = vision, B4 = life insurance, and more.
  • On the Add-ons tab, set up the add-ons as non-direct cost, clear the Paid to employee on check and the Print on paycheck checkboxes, and assign liability G/L account codes.

PART 2: Enter the add-on codes for each employee with coverage

  • In Payroll > Maintenance > Employee Deduction/Add-on Code Maintenance, set up each employee who receives coverage with the add-on codes you created in Part 1.
    Tip: For record-keeping purposes, it is recommended that you apply these add-on codes to all employees, and for those who decline coverage, set the rate to zero (0).
  • Be sure to include a monthly limit amount equal to the add-on amount. This will allow you to catch anyone who works in a given month, regardless of how often they work (for example, if they work for part of the month).
  • After the benefit A/P invoice is approved, but before the final payroll is processed during the month, the Human Resources manager should review the add-on amounts and limits in Employee Deduction/Add-on Code Maintenance and make any necessary corrections to employee benefits that might have come up due to life changing events, such as the birth of a child, a new hire, or terminated employees.

PART 3: Run the Add-on History Report

  • After payroll is processed but before you clear at month-end, run the Add-on History Report for "Exceptions only."
  • If any exceptions appear, such as employees who may have left and come back, you should go back and address the exception. This allows you to periodically identify people who have a benefit that has not been processed because the employee did not receive a pay check for some reason.
  • Use the Adjust Non-Cash Add-on Balances feature in Payroll > Period End to address exceptions.

PART 4: Clear the month-end Payroll totals

On the Payroll > Period End menu, select Period End Clear and run this update for "Month-to-date."