Federal Health Reform Means State Tax Bill in California

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Stoel Rives attorney Howard Bye discussed the impact of federal health care reform on the taxation of health coverage of children in California with Kathy Robertson of the Sacramento Business Journal. Prior to federal health care reform, the taxation of coverage for children in employer-sponsored health plans depended on whether the children qualified as tax dependents of the employee for health care purposes under complicated definitions in the Internal Revenue Code of "qualifying child" or qualifying relative." Effective March 30, 2010, pursuant to the Patient Protection and Affordable Care Act, health care coverage for an employee's children (including adopted children, children placed for adoption, stepchildren and foster children) can be provided tax-free under federal tax law to the employee through the calendar year in which the child turns 26

Bye noted that California remains one of about 20 states in which coverage for adult children is still taxable under state law. California lawmakers failed to conform state tax law to the federal law on this issue, when legislation that would have eliminated the inconsistency with the federal rules died in committee in November 2010. A new bill is currently pending in the California Legislature, that would eliminate state tax liability for health coverage for children age 26 or younger, retroactive to March 30, 2010.

*UPDATE 3/30/2011 – The California Senate has since passed the bill by a 35-0 vote aligning California's state income tax on health coverage for adult children with federal law under health care reform. California Governor Jerry Brown is expected to sign it.

"Health reform means tax bill in California" was published by the Sacramento Business Journal, March 25, 2011.

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Howard D. Bye-Torre
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