Fringe Benefits, Sick Pay, and Employer Health Coverage

For employers in California, Connecticut, New York, and the Virgin Islands:

• Federal law requires reporting of sick pay payments made to employees by a third party, along with any taxes withheld.
• These amounts must appear on the employee’s W-2 or on a separate form from the third party.
• Be sure to obtain this information from your provider before your last 2025 payroll, so the 941 and W-2 forms are accurate.
• Additional charges apply if information is received after December 31, 2025.
• If you’re unsure who is responsible for reporting (Netchex or your third-party provider), confirm with your provider right away.
  • – If your provider is paying and reporting all taxes and preparing W-2s, do not send those payments to Netchex.

• Federal law requires the value of certain non-cash fringe benefits to be reported on the 941 and employee W-2s.
• Taxable fringe benefits are treated as wages, subject to Federal Income Tax, FICA, FUTA, and sometimes state taxes.
• IRS regulations define what counts as a taxable fringe benefit and how to calculate value.
• Companies may interpret taxing rules differently. Netchex cannot provide legal advice. Please consult your CPA if needed.
• Submit all fringe benefit data before your last 2025 payroll. Additional charges apply for late submissions.
• Make sure employees have enough pay from which taxes can be withheld to avoid the employer covering employee tax liability.

We’ll help you submit these reports on time to avoid penalties, amendments, and extra fees.

Employers are required to report the total cost of coverage under an employer-sponsored group health plan, including both the portion paid by the employer and the employee

• The value of coverage is reported in Box 12 of the W-2 with Code DD.
• Reporting is required if:
• You had more than 250 employees in the prior year, or
• You are self-insured.
• You can review your W-2 Report in Netchex for the prior year to confirm your W-2 count.

This reporting is informational only, giving employees useful, comparable data on the value of their health coverage.

• Box 12, Code W: Includes employer HSA contributions plus employee pre-tax contributions. Confirm all contributions are in payroll history.
• Box 13:
  • – Statutory Employee – selectable under W-2 settings.
  • – Retirement Plan – automatically checked if you have a payroll-funded plan (401(k), 403(b), SIMPLE, etc.). You can also select manually.