Should employer-paid marketplace health insurance on W-2 be considered taxable income?

This is actually a pretty interesting situation. When employers provide health insurance through the marketplace (ACA/Healthcare.gov) instead of a traditional group plan, it gets handled differently for tax purposes. The separate W-2 you received is showing the premium assistance your employer provided. The reason you see Social Security and Medicare withholding but no Federal income tax withholding is because those premiums ARE subject to FICA taxes (Social Security and Medicare) but are generally NOT subject to Federal income tax. In TurboTax, you'll want to enter this W-2 just like any other W-2 when prompted. The software should recognize that this is for health insurance premiums and handle it appropriately. When you enter it, you'll notice the income shows up, but the program will make adjustments as needed during the calculation process. Make sure you also have your Form 1095-A or 1095-B from the marketplace that shows your coverage for the year, as TurboTax will ask for that information too.

I went through something similar last year when my small company switched to marketplace coverage instead of group insurance. I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out exactly how to handle this situation. I was also getting conflicting advice about those W-2s with only SS and Medicare withholding. The tool analyzed my W-2 and other tax documents and explained in plain language what was taxable and what wasn't. It also showed me exactly where to enter everything in TurboTax. Saved me hours of stress and googling!

Just wanted to follow up! I tried that taxr.ai site that was recommended and it was incredibly helpful. I uploaded my weird W-2 with just SS and Medicare withholding, and it immediately identified it as employer-paid marketplace insurance. The tool explained exactly how to handle it in FreeTaxUSA, and even showed me the specific screens where I needed to enter the information. It correctly pointed out that while the amount is subject to FICA taxes, it shouldn't increase my federal income tax. The whole process took maybe 10 minutes tops. Super relieved I didn't mess up my taxes!

If you're planning to call the IRS to verify how to handle this W-2 situation, good luck getting through! I spent 3+ hours on hold last week trying to ask a question about employer-paid marketplace premiums. Eventually gave up and tried again the next day with the same result. I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree and wait on hold for you, then call you when an agent is on the line. The agent confirmed that employer-paid marketplace premiums on a W-2 are subject to SS and Medicare but not federal income tax. Exactly what I needed to know and saved me hours of frustration.

I have to eat crow here. After my skeptical comment earlier, I actually tried Claimyr because I was desperate to get an answer about my marketplace insurance W-2. The service actually worked exactly as described - got me through to an IRS agent in about 20 minutes, which is unheard of this time of year. The agent confirmed that my employer-paid marketplace premium W-2 should be entered like a normal W-2, but the amount isn't subject to federal income tax (just the SS and Medicare that was already withheld). Saved me from potentially making a costly mistake on my return. Consider me a convert - the service fee was totally worth it to get a definitive answer directly from the IRS without wasting an entire day on hold.

Worth noting that how this works depends on HOW your employer is providing the insurance. If they're directly paying for a marketplace plan they selected for you, that's handled differently than if they're reimbursing you for a plan you chose yourself (like through a QSEHRA or an ICHRA arrangement). If it's a reimbursement arrangement, make sure you've properly reported your premium tax credit situation on Form 8962. The proper way to handle this can vary based on the specific arrangement your employer has set up.

Has anyone else noticed that TurboTax sometimes miscalculates when you have these special W-2 situations? Last year I had a similar marketplace premium W-2 and TurboTax initially included it as taxable income. I had to go back and manually adjust something to get it right.