It may only be a few days before state and federal taxes are due, but California has finally cleared up the confusion over how it will tax the health insurance parents provide to their young adult child through their employer-based group health insurance plans, and the news is good! If you live in California, the bill signed by Governor Jerry Brown means that you won’t have to pay state income taxes on the health insurance that you are providing for your child(ren).
The bill brings California in line with the federal healthcare reform enacted last year. Under President Obama’s healthcare reform, parents are allowed to add their adult-aged children 26 or under onto their health insurance plans. It has been a relatively affordable way for parents to provide health insurance for young adult children who coudln’t find jobs with health insurance benefits during the economic downturn. Parents do not need to pay additional federal income taxes on the benefit, as long as the child does not turn 27 by the end of the tax year. (Healthcare reform also lets self-employed individuals deduct health insurance premiums for an adult child under age 27, even if the child is not a dependent.)
California did not immediately conform with the federal law, and so California employers who have been covering adult children on their health insurance were supposed to include the health insurance benefits in calculating state, but not federal, income for tax purposes. If you have been covering your adult-aged child on your employer’s health insurance plan, you may have noticed that the federal and state wages are not the same on your W-2s. If so, your employer should be issuing new corrected W-2s which take out the value of your child’s health insurance from your state wages. If you’ve already filed your taxes for the year, you will have to file an amended return to get the taxes that you may have paid on your child’s health insurance back.
If you have been covering your child on your employer’s health insurance and your state and federal wages are the same, don’t worry. Many employers ignored the instructions to count the health insurance in state wages, figuring that California would get around to correcting the discrepancy sooner or later. Unless you took it upon yourself to pay the additional state taxes for your child’s health insurance on your own, you don’t have to file anything additional or do anything else!
Are you covering your adult child on your health insurance? Tell us about it!
- Healthcare Reform: Health Insurance and Adult Children, Whose Health Insurance Is It?
- Healthcare Reform: Putting your Adult Child on Your Health Insurance Policy… Is It Worth It?
- Healthcare Reform: Rules Regarding Adult Children and Health Insurance Finally Issued
- 4 Ways Retirees Can Get Health Insurance For Their Adult Children
- Healthcare Reform Changes: Health Insurance and Adult Children