The California Employment Development Department (EDD) has released a clarification to the original guidance provided on the tax treatment of health care coverage extended to adult children.
Patient Protection and Affordable Care Act Requires Extension up to Age 26
The Patient Protection and Affordable Care Act requires plans and issuers that offer dependent coverage to make the coverage available until a child reaches the age of 26. Both married and unmarried children qualify for this coverage.
Employment Taxes not Applicable To the Value of This Coverage
According to the EDD:
The extended coverage to adult children under the federal legislation referenced above is not considered wages that are subject to Unemployment Insurance (UI), Employment Training Tax (ETT), or State Disability Insurance (SDI), taxes. Existing State law, Section 931 of the California Unemployment Insurance Code (CUIC) excludes payments for employer-provided coverage under accident or health plans to a dependent from being considered taxable income for UI, ETT, or SDI purposes.
Section 931 of the CUIC does not apply to California Personal Income Tax (PIT) provisions. The fair market value for health care coverage to an adult child under the new federal provision is considered reportable income for California PIT purposes and subject to California PIT withholding. The fair market value of the health care coverage is set at the discretion of the employer.
Further Changes Are Expected In California and Other States
Check VisionPayroll.com frequently for updates to taxation of this coverage in California and other states.