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Health Insurance Benefits for Adult Children

Alert Details

On November 7, 2011, Governor Scott Walker signed legislation that simplifies Wisconsin income tax treatment of employer provided health insurance benefits for adult children.

In Wisconsin, employers were previously required to add the fair market value of the health insurance benefits to the parent's income if a non-dependent adult child was added to the plan. The parent then paid state taxes on the health insurance benefit.

This change means employers no longer have to add the fair market value to the employee's income. Nor is the parent required to report the fair market value as income on their state return or pay the tax on that amount. This change is retroactive as of January 1, 2011. To receive this income tax benefit, the child must be younger than age 27 on December 31st.

Wisconsin now conforms to federal law, which instituted the same change in legislation on March 30, 2010.

Below are the specific actions employers and employees should take related to this change in legislation

Employers

  • You should stop adding the fair market value of health insurance benefits to your employee's income.
  • When you prepare W-2 statements for 2011, you should no longer include any income previously added for the health insurance benefit.
  • Your employees will get credit on their income tax return for taxes withheld on the health insurance benefit.

Employees

  • You will receive credit on your state income tax return for the taxes withheld in 2011 for the additional income added for the health insurance benefit.
  • The health insurance benefit is no longer considered taxable income.

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