Employees Who Cover an Adult Non-Tax Dependent Child on Health Insurance No Longer Subject to Imputed Income
Prior to a recent state law change, if an employee carried an adult child on family health insurance who was not a tax dependent for health insurance purposes, the fair market value of coverage for that child(ren) was included in the employee's taxable state income and state taxes were owed on this additional income. This taxable benefit is considered "imputed income." 2011 Wisconsin Act 49, signed into law on November 4, 2011, eliminated this requirement. The payroll system has been updated with this change.
The effective date of Act 49 is January 1, 2011. If you paid additional taxes to cover your adult child on your health insurance in 2011, your 2011 W-2 will not include any imputed income but any additional taxes withheld due to imputed income will be included in Box 17 (state income tax) of the 2011 W-2.
Please see the Wisconsin Department of Revenue website for additional information.
Note: Act 49 does not change the existing imputed income laws related to health insurance coverage for a non-tax-dependent domestic partner and/or the domestic partner's children, nor does it make them eligible for ERA participation.
In 2012, adult children, whether or not a tax dependent, are eligible for State Group Health Insurance coverage until the end of the month in which they turn 26. The adult child's spouse and/or dependents are not eligible.
No Change to Your Paycheck: Due to a programming error in the new payroll system, employees who carried a non-tax dependent adult child(ren) on their health insurance did NOT pay any additional taxes on the fair market value of the coverage since late April. The fair market value of coverage was added to your taxable earnings but you did not pay any additional taxes on this amount. The last time additional taxes were taken from paychecks due to imputed income associated with an adult child was on the March unclassified check (payable April 1st) and the April A classified check (payable April 21st). There will be no change to your paycheck due to the implementation of Act 49.
All impacted employees will receive an email within the next week with additional information.
Special State Group Health Insurance Enrollment for Employees with Adult Children Under 26
Since Act 49 was signed after the annual It's Your Choice health insurance enrollment period, the Department of Employee Trust Funds is offering an extended It's Your Choice enrollment period to enroll these eligible adult children only through December 30, 2011. However, in order to ensure timely receipt of ID cards for your child, it is recommended that you add your dependent(s) as soon as possible. Any adult child eligible for benefits who was not previously listed on an application for coverage will be provided coverage effective January 1, 2012. If you would like to add an eligible adult child to coverage, you must submit an application to your UW institution's payroll office no later than December 30, 2011. When completing the application, check the box for "Adult Children, Annual It's Your Choice Period" in section 2. H.
Amend 2012 ERA Election through End of Year
You may now include medical expenses incurred by your adult child under age 26 under the Employee Reimbursement Account (ERA) program. Employees who enrolled in the Employee Reimbursement Account (ERA) program for 2012 may amend their ERA election though the end of the year.
If you wish to amend your ERA election, submit a new ERA enrollment form and mark the enrollment form as "supersede." Send the amended form to Roger Severson, Fringe Benefits Management Company/Wageworks, 113 S. Main Street, Suite 200, Lodi, WI 53555; FAX: 608-592-2030; e-mail: email@example.com; phone: 608-592-2020.
You should send your amended enrollment form to Roger Severson by November 30, 2011 to allow adequate time for processing. The forms will be accepted through the end of the year but if they are received after November 30th, the amended election amount may not be reflected on your first check payable in 2012.
If you did not enroll in the ERA program during the regular enrollment period but would like to enroll now, you must file an appeal with Fringe Benefits Management Company. Please see page 10 of the ERA brochure for details.
Since the law change is retroactive to January 1, 2011, if you have eligible medical expenses that were incurred by your eligible adult child in 2011, you may submit claims in order to receive reimbursement from your 2011 medical expense account. You may not change your 2011 ERA election amounts.
Source: UW System Administration