Employer Paid Health Care Value

Some employers must report the fair market value of employee health care to the IRS on Form W2, Box 12, code DD. This article walks through the full setup and reporting workflow: creating a Non-cash Clearing Account, setting up an Employer Paid Health Care Value distribution, and processing a manual check that assigns the dollar amount to Box 12 on the employee's W2.

Set up a Non-cash Clearing Account

A Non-cash Clearing Account is required to process a non-cash distribution such as an employer-paid health care benefit.

1. From the Payroll menu, select Modify > Employer Information.

   

2. Select the General Ledger Interface tab.

   

3. Verify that the Non-Cash Clearing Account is correct. If it is not, click the Edit icon next to it.

   Note: You can skip ahead to Set up an Employer Paid Health Care Value distribution if you do not want to interface with the General Ledger (the Interface with General Ledger? check box is cleared).

   

4. Enter the Non-Cash Clearing Account # and click Update to save it. The Account # is usually a Liability account.

   

5. Verify that the correct account number is shown for the Non-Cash Clearing Account, then click Update to save the Employer Information.

   

Set up an Employer Paid Health Care Value distribution

An Employer Paid Health Care Value distribution is required to post the health care value to an employee's record.

1. From the Payroll menu, select Modify > Compensation Information.

   

2. Enter E in the Description field, select View All Compensation Types, then click Search.

   

3. Click the Edit icon next to Employer Paid Health Care Value.

   

4. Click Add New Distribution.

   

5. Click the Edit icon next to the Regular Pay pay type, enter the Non-Cash Clearing Account, then click Update.

   Note: Use the same account specified on the Employer Information page in Set up a Non-cash Clearing Account.

   

6. Verify the account numbers are correct, then click OK to add the new distribution.

   

7. The new distribution appears in the grid at the bottom of the Compensation Information page. Click Update to save your changes.

   

Process a manual check to adjust Box 12 on an employee's W2

Manual checks can adjust amounts on an employee's W2. The example below walks through entering a manual check to increase Box 12 by $6,251, which also assigns code "DD" to Box 12. In the starting example, Box 12 is empty.

1. From the Payroll menu, select Enter > Manual Check.

   

2. Search for and select the Name of the employee whose Box 12 needs adjusting.

   

3. Click Add New Compensation.

   

4. Select the Compensation and Distribution set up to adjust Box 12, enter the Amount of the adjustment, then click OK.

   Note: To decrease the Box 12 amount on the W-2, enter a negative amount.

   

5. Enter the Check # and Check Date for the manual check.

   Note: Designate a range of check numbers for W2 adjustments that falls outside your normal check run (for example, 9000000-9999999). This makes the adjustments easy to identify during an audit or for general bookkeeping. Using "December 31" consistently as the Check Date for manual check adjustments is also recommended.

   

6. Click Update to save your changes.

   

7. Select the check box next to the manual check, then click Post Manual Checks.

   

8. The Manual Check Register appears. Review the report. If the information is correct, click Finalize Post. If not, click Cancel and make the appropriate changes to the manual check.

   

9. After posting the manual check, run the W2s. Box 12 has increased by the amount of the manual check. In this example, Box 12 increased by $6,251 with the corresponding code "DD" displayed.

Updated May 18, 2026 17:55