On a straight Democratic party line vote 2009 Wisconsin Act 28 added Section 632.885 to the Wisconsin Statutes, which mandates healthcare coverage on a parent’s plan for unmarried children over 17 but not more than 27 years of age who either are not eligible for their own employer-sponsored health care coverage, or for whom the cost of their own employer-sponsored coverage is higher than the amount of their parent’s premium.
Less then a year later, the Democrat-controlled U.S. House and Senate passed Obamacare. Nestled in an over 2,000-page bill was a federal requirement for group health insurance plans and health insurers to cover adult dependents to age 26. The ensuing mess created a tax disparity for imputed income.
According to USLegal.com, imputed income is the addition of the value of cash/non-cash compensation to an employee’s taxable wages in order to properly withhold income and employment taxes from the wages. Examples of imputed income are dependent care assistance that exceeds the tax-free amount and educational assistance above the excluded amount.
For federal income tax purposes, effective as of March 30, 2010, imputed income tax or withholding rules do not apply to insurance coverage provided to an adult child who is 26 or under for the full tax year. This exception however does not apply to state law.
Currently in Wisconsin, the Fair Market Value (FMV) of insurance coverage provided for an individual who does not qualify as a dependent under Internal Revenue Code (IRC) Section 152, is taxable for employees. Therefore, the Fair Market Value of the adult dependent health insurance benefit must be added to an employee’s earnings as imputed income.
According to data provided by the Wisconsin Office of the Commissioner of Insurance, the U.S. Department of Health and Human Services, and the U.S. Census Bureau, approximately 15,900 Wisconsin individuals will be required to pay the imputed healthcare income tax. The estimated imputed share of those benefits each year is roughly $1,747 per adult child.
Assembly Bill 277 authored by Representative Pat Strachota (R- West Bend) adopts for state income and franchise tax purposes, a provision which simplifies this issue for employers and employees alike by revising adult dependent requirements and state tax code to be consistent with the federal law. The imputed healthcare tax exemption will be retroactive to January 1, 2011.
I am fundamentally opposed to Obamacare. Written as a mandate, it usurps our established free market system of healthcare, putting decisions in the hands of Washington bureaucrats. Furthermore, I question the constitutionality of this federally run healthcare system.
However, until Obamacare is either repealed or deemed unconstitutional by the Supreme Court, it is imperative I pay due diligence to protect the Wisconsinites affected by the imputed tax imposed.