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California Excludes From Taxes Health Care Coverage for Adult Children Up to Age 27

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Public Affairs Office
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For Immediate Release

04.12.2011

Sacramento – New state law enacted on April 7, 2011, conforms California to federal law that excludes from taxable income the value of employer-provided medical coverage to nondependent adult children under the age of 27, according to the Franchise Tax Board (FTB).

The Federal Health Care Act of 2010, made numerous changes to the health care system. One provision that became effective in 2010 requires group health plans and health insurance issuers that offer group or individual health insurance coverage, and that provide dependent coverage of children, to extend that coverage to adult children under 27 years old. For federal law, these benefits are excludable or deductible medical care expenses.

AB 36 adopts a specific provision of this federal Act. It is effective immediately and applies to taxpayers filing their 2010 tax returns due April 18, 2011.

Taxpayers whose Form W-2 includes the amount of medical coverage for nondependent adult children in California wages, should request that their employer issue Form W-2C excluding the amount from California wages. If this is not possible, taxpayers can use form FTB 3525 as a substitute for Form W-2C. Taxpayers should use the corrected wage form to file their state tax return to exclude from taxable income the value of this employer-provided medical coverage.

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

Taxpayers who have already filed their 2010 state tax return reporting the amount of medical coverage for their nondependent adult children in their California wages, should file a 540X, amended tax return to exclude this income and claim a refund. The same applies for self-employed individuals who reported a California adjustment including the health insurance premium paid for nondependent adult children.

For more information on other taxes and fees in California, visit: taxes.ca.gov.

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