Employee Benefits Compliance, State-Specific Information, Taxes, Fees & Penalties

California Gov. Brown Signs AB 36

California Governor Brown signed AB 36, the California bill that conforms California tax law to federal tax law, in the area of taxability of employer-paid medical benefits for employees’ adult children. The Health Care Reform law (PPACA) provides for coverage of adult children to age 26, even if they are not Tax Code dependents, and subsequent guidance excludes from federal taxation any employer contributions toward coverage for such adult children.

The California Legislature passed AB 36, and it was awaiting the Governor’s signature. Gov. Brown has now signed the legislation and it was chaptered on April 7, 2011.

What this means for you:

This means that California employers do not have to withhold California taxes on employer contributions toward coverage for adult dependents. It also means that those employers who already complied with what the law was must now offset future state tax withholding by the amounts already withheld. No good deed goes unpunished! No wonder many of us procrastinate — it might turn out to be in our best interest.

See Leavitt’s prior Bulletin (February 17, 2011) on Adult Dependents: California Issues New Guidance for additional information.