Employees who use state dependent coverage rules to get health insurance for some dependents could end up having to include the value of the insurance in state taxable income.
Paul Hamburger and James Napoli, benefits lawyers in the Washington office of Proskauer Rose L.L.P., say workers could be tripped up if they are unaware of how the new federal dependent coverage standards interact with state dependent coverage standards.
The Affordable Care Act, the federal legislative package that includes the Patient Protection and Affordable Care Act, includes a provision that requires health plans that offer dependent coverage to make coverage available to enrollee dependents up to age 26.
Some states may may simply use the federal definition. Others have developed their own definitions.
"If a group health plan covers employees in a non-conforming state with children who meet the federal, but not state, definition of an eligible dependent, the coverage is potentially taxable to the employees for state income tax purposes," Hamburger and Napoli say.
The current list of non-conforming states appears to include Arizona, Arkansas, California, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Massachusetts, Minnesota, Oregon, South Carolina, Virginia, West Virginia, and Wisconsin., the lawyers say.
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CORRECTION: In an earlier version of this article, the tax problem potentially arising from a conflict between state and federal dependent coverage access definitions was described independently. The worker may end up paying unexpected state income taxes.
- Allison Bell
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