Employment Law Blog

News, trends and analysis in employment law and HR

May 20, 2011

CALIFORNIA: Adult child health benefits no longer taxable

Employee Benefits 

Good news for employees who cover their nondependent adult children on their employer’s health plan: thanks to the passage of AB 36, the value of the health benefits is no longer subject to state income tax. AB 36 brings California tax law in line with federal law, which has permitted tax-free benefits for adult children (through the end of the year in which the child turns 26) since March 30, 2010. Previously, dependent benefits were only tax-free if the child was under 24, a fulltime student, maintaining the same principal residence as the parent for at least half of the year and receiving more than one half of his or her annual financial support from the parent. (Children who are permanently and totally disabled, regardless of age, could also receive benefits tax-free to the employee.) The changes brought about by AB 36 apply retroactively to March 30, 2010, which means that employers who have been reporting imputed income will now need to make amended tax filings for 2010. California’s Employment Development Department has posted online guidance for employers. Consult your payroll or tax adviser with questions.

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