California Assembly Bill (AB) 36 was signed by Governor Jerry Brown on April 7, 2011. This bill brings California into conformity with the Federal government regarding the Health Care Acts of 2010 for state income tax purposes.

Change Is Retroactive To 2010

AB 36 now excludes health insurance premium payments and medical reimbursements for medical care expenses on behalf of adult children, from California Personal Income Tax (PIT) wages/income and PIT withholding, retroactive to the original enact date(s) of the Health Care Acts in 2010.

2010 Amendments May Be Filed on Form DE 678

For 2010, employers who calculated a fair market value benefit amount as imputed income for California Personal Income Tax (PIT) wages for their employees and subsequently withheld PIT on this value should issue Form W-2C to impacted employees that reflect the correct PIT wage amount. Employers can amend their California state payroll tax returns using our Tax and Wage Adjustment Form (DE 678).

2011 Amendments May be Filed on Form DE 9ADJ

For 2011, if employers calculated a fair market value of the health insurance premium and withheld the applicable PIT in the first quarter and have already filed their Quarterly Contribution Return and Report of Wages (DE 9), they can amend the return by using our Quarterly Contribution and Wage Adjustment Form (DE 9ADJ).

Correct 2011 Reports Before Filing, if Possible

For employers who have calculated PIT wages and withheld PIT from their employees for the first quarter but not yet filed the DE 9 and Quarterly Contribution and Wage Adjustment Form (Continuation) (DE 9C), you may choose to file and report the correct wages and withholding amounts while revising your payroll process internally for the over-reporting and withholding.

Contact Vision Payroll for Further Information

Contact Vision Payroll for further information on the changes to California taxation of health benefits.