• New Law Excludes Health Insurance Coverage of Adult Children from State Income Tax
  • May 11, 2011 | Authors: Allison De Tal; Isabel Cesanto Safie; John D. Wahlin
  • Law Firm: Best Best & Krieger LLP - Riverside Office
  • Now California tax law, like federal tax law, excludes health coverage for adult children from employees’ income, retroactive to 2010. Employers who issued 2010 Form W-2s including medical coverage for non-dependent adult children in employees’ California wages should issue a Form W-2c to all affected employees as soon as possible. Impacted individuals who filed a 2010 California tax return which included the amount of medical coverage for a non-dependent adult child in wages should file an amended return upon receipt of the Form W-2c.

    Under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, both passed in 2010, group health plans which provide coverage for employees’ children are required to offer coverage for adult children until age 26. The value of this coverage is excluded from the parent-employee’s federal taxable income.

    Despite the federal exclusion, until last month California law included the fair market value of such medical coverage in a parent-employee’s gross income for state income tax purposes. On April 6, the Governor signed Assembly Bill 36 which brings California tax law into conformity with federal tax law. As such, premium payments and medical reimbursements for adult children are now excluded from California personal income tax wages and withholding requirements. Assembly Bill 36 retroactively excludes the value of health benefits provided to adult children in 2010.