E-Alert
February 2, 2011
California Taxability of Health Insurance
California does not conform to the new federal income exclusion for employer-paid health insurance for nondependent adult children (until age 26). For California income tax purposes, the costs attributable to an adult nondependent child must be added to California wages, although they are excluded for federal tax purposes.
If an employer-provided health insurance plan separately sets forth a cost for each participant, then the cost attributable to an adult nondependent child is the amount added to California wages. When the plan does not set forth a separate cost for each participant, an employer must "impute" the cost of health insurance for the employee's nondependent adult child on the employee's Form W-2.
An employee's Form W-2 should reflect this state and federal wage difference, starting with the 2010 Form W-2s.
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If you have any questions regarding the information in this article, or have any other issues you would like to discuss, please feel free to contact the DZH Phillips tax department at 415.781.2500 or email cpas@dzhphillips.com.
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