What Is the H&W Line on My Paycheck?

Understanding Health and Welfare Payments

The “H&W” line on a paycheck stands for Health and Welfare. It covers costs associated with employee benefits.

These amounts are typically allocated by an employer to fund benefits such as health insurance premiums, contributions to retirement accounts, or other fringe benefits like life insurance or disability coverage. H&W payments are distinct from an employee’s base hourly wage or salary, supplementing overall compensation by addressing benefit costs separately from direct pay.

Common Scenarios for H&W on Paychecks

Health and Welfare payments frequently appear on paychecks when an employer is a contractor working on government projects. Federal regulations, such as the Davis-Bacon Act and the Service Contract Act, often mandate specific benefit contributions. These acts require contractors to pay their employees prevailing wages and fringe benefits for work performed on covered projects.

The H&W line on a paycheck represents the benefit portion of these prevailing wage requirements. Instead of paying benefits directly, some contractors may list the equivalent cash amount as an H&W payment. This ensures compliance with federal mandates for a comprehensive compensation package.

How H&W Funds Are Utilized

Employers handle Health and Welfare funds in two primary ways. One method involves contributing the H&W amounts directly to a qualified benefit plan on the employee’s behalf. This can include payments for health, dental, or vision insurance premiums, contributions to a 401(k) or other retirement plan, or funding for life insurance policies. In this scenario, the employee benefits from employer-sponsored coverage or savings rather than receiving cash in their take-home pay.

Alternatively, an employer may pay the H&W amount directly to the employee as a cash equivalent. This often occurs if an employee chooses not to participate in the employer’s benefit plans or if the employer does not offer a specific benefit. When paid as cash, the H&W amount increases the employee’s gross taxable wages. This provides immediate funds, but shifts the responsibility for benefit acquisition to the employee.

Taxation of H&W Payments

The tax implications of Health and Welfare payments depend on how the funds are utilized. When H&W amounts are paid directly to an employee as a cash equivalent, these payments are subject to payroll taxes, including federal income tax, Social Security, and Medicare. Cash payments are considered ordinary income and increase taxable wages reported on their W-2 form.

Conversely, H&W amounts contributed by an employer to qualified benefit plans typically receive different tax treatment. Contributions to health insurance premiums are often pre-tax, reducing taxable income. Similarly, employer contributions to qualified retirement plans are usually tax-deferred, meaning taxes are not paid until withdrawal in retirement. Tax treatment depends on the benefit type and relevant tax regulations.