BILL ANALYSIS �
AB 36
Page 1
Date of Hearing: February 24, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 36 (Perea) - As Amended: February 18, 2011
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill conforms to existing federal tax law that excludes
from the gross income of a parent any health care benefits and
medical care expenses provided by the parent's employer to an
adult child 26 years or younger. Specifically, this bill:
1)Excludes from the employee's gross income the value of
employer-provided health coverage, under an accident or health
plan, for the employee's adult child who, as of the end of the
taxable year, is 26 years or younger.
2)Allows a parent to exclude from his/her gross income any
reimbursements, under a flexible spending arrangement, for
medical expenses incurred by the parent for the medical care
of his/her adult child who is 26 years or younger through the
end of the taxable year.
3)Allows self-employed individuals to deduct the cost of health
insurance provided for an adult child under the age of 26
through the end of the taxable year.
4)Allows a member of a nonprofit voluntary employees'
beneficiary association that provides health benefits to an
adult child, to exclude the benefit from the member's gross
income.
5)Takes effect immediately as a tax levy.
FISCAL EFFECT
AB 36
Page 2
FTB staff estimates this bill will result in a revenue loss of
$4.8 million in fiscal year (FY) 2010-11, $38 million in FY
2011-2012, $35 million in FY 2012-13, $40 million in FY 2013-14,
and $44 million in 2014-15.
Historically, California has not collected revenues from the
income that accrues to taxpayers from employer provided health
insurance for eligible children. With the expansion of
eligibility for children up to the age of 26, this new stream of
income would become taxable, absent conformity language.
There could be minor offsetting savings from the cost of
covering individuals who would have been enrolled in
state-funded health care programs such as Medi-Cal, but with the
enactment of federal health care reform, instead obtained
coverage through their parents insurance.
COMMENTS
1) Rationale . By conforming California's tax laws to federal
standards, the state creates an affordable health insurance
option for the large pool of uninsured young adults in
California. According to the author, although SB 1088 allows
parents to add their adult child to their health care plan,
the cost of non-conformity may become a tax burden some
families may not be able to afford. By conforming
California's tax laws to federal standards, the state ensures
many more young adults are insured and their parents are not
burdened by additional taxes as a result
2) Coverage for adult children . Pursuant to SB 1088 (Price),
Statutes of 2010, which conforms to federal changes in health
care law, for specified group plans that provide dependent
coverage, the employer must provide health care coverage for
a dependent child up to the age of 26. SB 1088, however, did
not address the issue of how the benefit would be treated for
tax purposes.
3) Tax simplicity. Proponents state that the added
administrative and financial burden on employers in
attempting to calculate the taxable amount attributable to
the adult child would be eliminated with the passage of AB
36. Proponents also point out the additional tax burden that
parents will face, along with the potential added cost of
AB 36
Page 3
adding an adult child to their health plan, may become a
disincentive for parents to add an adult child to their
health care plan.
4) Conformity with federal tax . This bill is a tax conformity
bill that makes the mandated implementation of health care
reform an easier transition. When changes are made to the
federal income tax law, California does not automatically
adopt such provisions. Instead, state legislation is needed
to conform to most of those changes. Conformity legislation
is introduced either as individual tax bills to conform to
specific federal changes or as one omnibus bill to conform to
the federal law as of a certain date with specified
exceptions.
5) Previous legislation. AB 1178 (2009/10, Portantino) would
have conformed to the tax provisions of the Patient
Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, including the
exclusion/deduction of medical care expenses of any child who
turns 26 in a taxable year. That bill was held on the Senate
Appropriations Committee suspense file.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081