August 1, 2011 – Minnesota Legislature Amends Tax Law to Fully Incorporate Federal Tax Code Changes for Health Coverage Provided To Adult Children
As reported in one of our previous alerts here, the Patient Protection and Affordable Care Act (“PPACA”) amended Section 105(b) of the Internal Revenue Code of 1986 (the “Code”) to exclude the value of group health plan coverage provided to an employee’s “adult child” from the employee’s federal taxable income. For this purpose, an “adult child” is an employee’s child who will not attain age 27 during the calendar year.
Many states had language in their statutes that automatically adjusted their state income tax law to the federal law. Some states, including Minnesota, did not have automatic language. Early in 2011, the legislature retroactively addressed the 2010 taxable year, making the state definition match the federal definition. Unfortunately, that legislative action did not address taxable years beyond 2010. It was a one year fix. Employers have been in a type of limbo regarding how to treat adult child coverage for 2011 purposes. The wait is finally over!!
Latest Actions in Minnesota Legislature
On July 20, 2011, Minnesota legislature (See House Bill H.F. 20) amended Minnesota tax law to fully incorporate changes made to Section 105(b) of the Code made under PPACA. The amendment is effective retroactively back to the date on which Section 105(b) was amended.
What does it mean?
Providing health coverage to an “adult child” does not create taxable income to an employee for purposes of Minnesota income tax and the value of the coverage is not subject to the Minnesota income tax withholding requirements for tax years 2010, 2011 and going forward.
Minnesota Department of Revenue
We understand that the Department of Revenue website will be updated soon to reflect the recent legislative amendment and to include revised Individual Income tax forms that reflect the latest changes.
Action items
In light of the amendment to the Minnesota law fully incorporating the change to Code Section 105(b), if you are currently imputing income to an employee equal to the value of employer provided group health coverage provided to an employee’s “adult child” for the purpose of Minnesota income taxes, (1) stop doing so, and (2) undo the imputations back to the start of the 2011 taxable year.
Please contact us if you need assistance regarding the requirements or action items.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.