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California governor signs health care reform conformity bill

Posted On: Apr. 8, 2011 12:00 AM CST

SACRAMENTO, Calif.—California Gov. Jerry Brown on Wednesday signed legislation to enable employers to extend coverage to employees' adult children up to age 26 without employees being taxed on the coverage, as they are required to do under the federal health care reform law.

California lawmakers last month approved the measure, A.B. 36, which conforms California tax law with the health care reform law.

That law requires such an extension of coverage to employees' children up to age 26, and 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 turned 26.

Conformity measure overrides five-part test

Prior to the passage of the conformity legislation, California law had set a five-part test, all of which had to be satisfied, for the coverage to be excluded from employees' taxable income. Among other things, the child had to be younger than 19, or 24 if a full-time student. As a result, 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 have been considered taxable wages and subject to California taxes.

Gov. Brown's action comes as other states, including Arkansas, Kentucky, Minnesota and South Carolina, in recent weeks have passed conformity bills. Also this year, conformity measures were approved by lawmakers in Arizona, Maine and Oregon.

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