Wisconsin Adopts Federal Tax Treatment of Health Benefits for Adult Children
11/11/2011 11:00 AM
On Friday November 4, 2011 Wisconsin Governor Scott Walker signed into law legislation that adopts the federal income tax treatment of employer-provided health coverage of adult children who have not attained age 27 as of the end of the tax year for Wisconsin state income tax purposes. Prior to this recent change, Wisconsin was the only remaining state that had not adopted the federal income tax treatment. The change is effective retroactive to January 1, 2011.
Federal Income Tax Treatment
Effective March 30, 2010, under health care reform, the value of employer-provided health benefits for employee’s dependents that have not attained age 27 as of the end of the tax year is excluded from the employee’s gross income.
What does this mean for administration of the BESTflex Plan and EBC HRA?
· Reimbursement from a Health Care FSA or EBC HRA for expenses incurred by an eligible child, are excluded from the employee’s gross income for Wisconsin state income tax purposes, retroactive to January 1, 2011 (these reimbursements have been excluded from federal income tax since March 30, 2010).
· Employers do not need to report any such reimbursements made for expenses incurred by the eligible child on or after January 1, 2011 as taxable income to the employee for Wisconsin state income taxes.
· Employers do not need to impute income for Wisconsin state income tax purposes for any insurance premium paid or funding of an EBC HRA to cover the eligible child.
· Employees can pay their share of premiums to cover the child as a Wisconsin pre-tax amount through the employer’s BESTflex Plan (the premium was not subject to federal taxes after March 30, 2010).