California and The Patient Protection and Affordable Care Act

Courtesy of the California Franchise Tax Board.

Bad news folks! Wait until you see how the federal medical benefits mess up your California paychecks!

The Patient Protection and Affordable Care Act signed by the President in March of 2010, requires employee benefit plans that provide coverage for family members to cover the employee’s adult children under the age 27 whether or not they qualify as dependents for tax purposes. The requirement is effective for plan renewals beginning on or after September 23, 2010.


 
The Act also amended federal income tax laws to exclude the value of an eligible adult child’s medical coverage from the taxable income of the parent-employee.
 
California law has not been amended to conform to the federal income tax rules that exclude the value of the medical coverage provided to adult children from California gross income. For California income tax purposes, any amount paid on behalf of an employee for such added coverage is excluded from federal, but not California taxable wages.
  
The additional income is reportable and taxable to the employee, not to the adult child. The amount of income included in taxable wages is equal to the amount by which fair market value of the taxable benefit received by an employee exceeds the amount the employee pays for the benefit.Also, amounts paid by self-employed individuals for health insurance for any child under age 27 who is not a dependent are not deductible for California purposes.

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