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Calif. approves bill updating tax rules on adult child coverage


SACRAMENTO—The California Senate has given final approval to a bill allowing employers to extend coverage to employees’ adult children up to age 26—as required by the federal health care reform law—without employees facing state taxes on the coverage.

The legislation, A.B. 36, which the California Senate approved Thursday on 35-0 vote, would conform the state’s tax law to the federal law.

That law requires extending health care coverage to employees’ adult children. Subsequent Internal Revenue Service rules said the coverage can be extended on a tax-free basis through the end of the year in which the child turns 26.

California’s current law sets forth a test of five parts, all of which must be satisfied for the coverage to be excluded from employees’ taxable income. Among other things, the child must be younger than 19 or 24, if a full-time student. If an employee added an adult child who did not satisfy the test, the portion of the health insurance premium attributed to the child would be considered taxable wages and subject to state taxes.

California Gov. Jerry Brown is expected to sign the legislation into law.

California joins the number of states that have moved or are in the process of revising their laws to address the issue.

Minnesota Gov. Mark Dayton this week signed conformity legislation, H.F. 79, while Kentucky Gov. Steven Beshear did the same last week, signing H.B. 255.

Meanwhile, the Vermont House passed a conformity measure, H. 436, while the South Carolina Senate has approved its conformity bill, S. 522. Earlier this year, lawmakers in Arizona, Maine and Oregon also approved conformity measures.

Most states, though, do not have to take such action, because their statutes are amended automatically to reflect changes in federal tax law.

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