On Friday November 4, the Governor signed Senate Bill 203, which conforms the Wisconsin income tax treatment of health coverage for adult children with federal law. Under the new law, which applies retroactively to January 1, 2011, any amount paid for health coverage for an adult child is excluded from income for state income tax purposes through the end of the tax year in which the child turns age 26. This is the same rule that currently applies for federal income tax purposes. (The Wisconsin Department of Revenue has issued guidance on the new law, which can be found here: http://www.revenue.wi.gov/taxpro/news/111107.html.)

This change should simplify income tax issues for employers and employees. Prior to the change, Wisconsin’s tax law required the value of health coverage for an adult child to be imputed as income unless the adult child qualified as a tax dependent (generally a child is a tax dependent if he or she is under age 19 or is a student and under age 24). Imputing income for adult child coverage created complicated administrative issues for employers and employees. These complications will largely be eliminated now that Wisconsin has adopted the federal rule for income tax treatment of adult child coverage.

Further, the change in the tax law comes on the heels of the simplification of the rules regarding coverage for adult children. The amended coverage rules, which go into effect beginning January 1, 2012, largely conform Wisconsin law with the federal law regarding coverage of adult children (there are some differences regarding the coverage of students who are called to active military duty). Once in effect, the amended Wisconsin law will generally require insurers and self-insured governmental health plans that offer dependent child coverage to offer coverage to all adult children under age 26. This represents a change from the current Wisconsin law, which makes coverage available to adult children who are under the age of 27 and meet certain statutory requirements.

If you have any questions, please feel free to contact Andrew DeClercq.

The Author