On April 7th, 2011, Governor Brown signed AB 36 which provides both administrative and tax relief to California employers and their employees. California now adopts the federal rules regarding the tax treatment of adult dependents electing group health care coverage pursuant to the Patient Protection and Affordable Care Act (PPACA) and related laws (HCR).
The law removes the imputed income tax requirements on over-aged dependents up to age 27 (i.e. through age 26), relieving employers from having to impute income for employer-provided health coverage to children over age 19 who do not meet the traditional definition of a qualifying child, which requires that they be full time students and living with the taxpayer.
Retroactive Relief: Because AB 36 offers retroactive relief from having to track imputed state income for employees with over-age dependents, employers will need to look to the Employment Development Department for guidance on amending information reported for 2010 on Forms DE 6 and DE 7, the Quarterly Wage and Withholding Report, and Annual Reconciliation Report, respectively. Adjustments to either form filed in 2010 are made on Form DE 678.
For 2011, however, DE 6 and DE 7 are replaced with Form DE 9 (Quarterly Contribution Return and Report of Wages) and DE 9C (Quarterly Contribution Return and Report of Wages (Continuation)). Those new forms are amended by filing new EDD Form DE 9ADI (Quarterly Contribution and Wage Adjustment Form). Per a contact at EDD, after final passage of AB 36 they will study the measure and advise on corrective reporting steps; so, the above instructions may change. To correct employee wage statements, employees will need to file Form 540X with the Franchise Tax Board.
