California Tax Change AB36 Passed Due to PPACA

California Assembly Bill (AB) 36 was enacted on April 7, 2011. This bill conforms California personal income tax law with federal income tax law by adopting a specified provision of the Affordable Care Act signed into law by the President in March 2010. (The Affordable Care Act refers to Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.) AB 36 is effective immediately, and generally applies to the same taxable periods as federal law.  The Patient Protection and Affordable Care Act requires benefit plans that provide coverage for family members to cover adult children of the employee, to age 26 whether or not they qualify as dependents for tax purposes.  The Health Care and Education Reconciliation Act of 2010 extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the taxable year.

Impact on Income Tax – The Affordable Care Act amends federal income tax laws to exclude the value of an eligible adult child’s medical coverage from the taxable income of the parent-employee, even if the child is not a dependent. The law also allows self-employed individuals a deduction for health insurance premiums for an adult child under age 27, even if the child is not a dependent.

New California law – California personal income tax law, as amended by AB 36, conforms to the 2010 federal income tax rules which exclude the value of the medical coverage provided to nondependent adult children from California gross income and allow a deduction to self-employed individuals for health insurance premiums for nondependent adult children under age 27.

  • Any amount paid by an employee for such additional coverage is excluded from California taxable wages.
  • Self-employed individuals may deduct the health insurance premium paid for an adult child under age 27.

How to File

Form 540 – On an original tax return

If the employer issued Form W-2 including the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C.

Self-employed individuals may deduct the health insurance premium paid for nondependent adult children under age 27. No California adjustment is needed.

Form 540X – On a previously-filed tax return

If you have already filed Form 540 with Form W-2 that included the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C. File Form 540X to report the reduction in your California wages.

For self-employed individuals who reported a California adjustment excluding the health insurance premium paid for nondependent adult children, file Form 540X to report the allowed deduction for California.

Please note we are not tax professionals.  Please refer to your tax advisor for information on how this may relate to your tax filing.

Department of Health and Human Services Releases Format For Rate-Increase Notices

 The Department of Health and Human Services (HHS) will require that any increase of more than 10%  in the individual and small group insurance markets must be posted electronically and will need to be justified by carriers starting in July, 2011.   In addition to state regulators, consumers will also need to be notified of the increases electronically.   The requirement is designed to stop “unreasonable” rate hikes by insurance carriers. 

What I Learned On My Winter Vacation

Hello Amigos!  I have just returned from an eight day cruise on the Mexican Riviera.  Before you get too jealous, let me tell you I returned with a horrible case of the flu.   Feel better now?      

While on a bus tour of Mazatlan, our driver, Carlos, was speaking about many of the buidings we saw on our drive.  He mentioned the private hospital and the public hospital.  I already knew that  Mexico has socialized medical care for its citizens.  I asked Carlos why there were two hospitals and what were the differences.  He explained that the private hospital was for those people who could not wait at least a week for care or needed a greater level of medical care.  The public hospital was for “everyone else”.  Naturally, there were costs associated with using the private hospital.   

I found this really interesting.  I have Canadian relatives who do come here for medical care, since they do not want to wait for care under the Canadian system.  I have never heard about a private versus public hospital system in Mexico.  I have since done some research on this and have found that there are a few levels of care available to Mexican citizens based on their employment status.  While the quality of care on Mexico has improved greatly in the past 40 years, it still lags behind the care provided in the United States.  For those citizens who can afford the best care and those who want control over the care they receive, the private hospitals are an option.

So what did I learn on my winter vacation?  That there is no place like home.  They may have better weather and margaritas in mexico, but we still have a better health care system.  Yes there is still a long way we have to go in regards to our insurance and health care systems, but we are still better off  in this country than our neighbors to the South.  Viva USA!!