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April 9, 2011 | Benefits Management | Posted by Mike Lin, Principal Product Manager at Ascentis

Update on State Taxation of Health Care Benefits for Adult Children

As many know, the federal Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, both passed in March 2010, allowed children under the age of 27 to remain on their parents’ health care plans.

As covered in a previous post, the federal government also amended the IRS Code to reflect that the value of the coverage provided for adult children, as well as payments/reimbursements made by the employer for medical expenses of these children, is not taxable income to the parent. In our prior post, we covered those states (Maine, Mississippi, Pennsylvania, Virginia, West Virginia) who had provided clarification on this issue. Just recently California was also added to this list as Gov. Jerry Brown signed bill, AB 36, into law on April 7th, 2011.

A handful of states (Georgia, Hawaii, Massachusetts, New Jersey, South Carolina, and Wisconsin) did NOT adopt the federal tax rules for adult child medical coverage or medical payments. For those states, the fair market value of medical coverage provided to adult children should be considered taxable income.

However, five additional states have now conformed to the federal tax treatment of health care benefits for adult children due to recently enacted legislation. Those states are: Arkansas, California, Kentucky, Minnesota, and Oregon.

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