MINNESOTA TAXATION OF COVERAGE FOR ADULT CHILDREN
August 23, 2011
The Affordable Care Act[1] has extended coverage for eligible dependents up to the age of 26. In addition, the value of this coverage for adult children can be excluded from the employee’s federal taxable income as long as the dependent will not reach age 27 during the calendar year.
In order for this coverage to be excludable from an employee’s state taxable income and income withholding requirements, a state must amend its income tax law to match the federal definition (if not done so automatically). Early in 2011, the Minnesota state legislature did change tax law so that the extension of coverage up to age 26 would not create a taxable event for employees; however, this applied only to the 2010 taxable year. Employers were uncertain how to address this issue for 2011 and beyond.
On July 20, 2011, the Minnesota legislature amended state tax law so that providing coverage to an adult child is no longer subject to Minnesota income tax withholding requirements nor creates taxable income to the employee. Employers no longer are required to impute taxable income to employees for tax years 2010, 2011 and beyond. In addition, employers who have been imputing taxable income to employees in 2011 should undo these imputations.
[1] “Affordable Care Act” means The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 (HCERA).
