As we have advised in the past, although Federal Health Care Reform allows for adult children to be covered until age 26 without tax implications if the child is not a dependent, the State of California currently is not following form.  The State of California currently requires employers to identify the value of the coverage provided to adult, non-dependent children so that employees will be taxed on this benefit.  If this does not change in California, as well as a number of other states throughout out the country, you will need to identify this value on your employees 2011 W-2.

In 2010, AB 1178 was introduced by California Legislators.  AB 1178 would have followed Federal Law and allowed for adult children to be covered without being taxed.  AB 1178 was not passed into law.

The topic has come up again and AB 36 is currently being considered by California Legislators.  On March 7th, the California Assembly voted 74-0 in favor of allowing employers to extend health care coverage to employees’ adult children without employees being subject to state taxes on the coverage.

The next step is for the Senate to vote on this legislation.  We will keep you updated.

Employers with employees located throughout the country will need to review the laws within each state to ensure compliance. If we can help with this process, just let us know.

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