BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 36|
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THIRD READING
Bill No: AB 36
Author: Perea (D) & Blumenfield (D), et al
Amended: 2/18/11 in Assembly
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 8-0, 3/16/11
AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez,
La Malfa, Liu
NO VOTE RECORDED: Kehoe
SENATE APPROPRIATIONS COMMITTEE : 7-0, 3/17/11
AYES: Kehoe, Alquist, Emmerson, Lieu, Pavley, Price,
Steinberg
NO VOTE RECORDED: Walters, Runner
ASSEMBLY FLOOR : 74-0, 3/3/11 - See last page for vote
SUBJECT : Income and employment taxes: federal
conformity:
healthcare conformity
SOURCE : Author
DIGEST : This bill conforms to the federal changes in the
law for dependents under age 27. Specifically, this bill
conforms to the federal age requirement for
employer-provided health coverage and reimbursements for
medical care expenses under an employer-provided accident
or health plan, deductible self-employed medical insurance
costs, and voluntary employees' beneficiary associations.
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This bill also conforms to the federal change under the
unemployment insurance law.
ANALYSIS : In March of 2010, the United States Congress
enacted, and President Obama signed, comprehensive federal
healthcare reform legislation: The Patient Protection and
Affordable Care Act (Public Law 111-148, March 23, 2010),
and the Health Care and Education Reconciliation Act of
2010 (Public Law 111-152, March 30, 2010). One provision
of the healthcare acts requires group health plans and
health insurance issuers that offer coverage for dependents
to make coverage available for an unmarried adult child up
to age 26. Corresponding tax-related provisions provide a
genera exclusion or deduction from taxable income for costs
associated with providing health benefits for an adult
child who has not turned 27 by the end of the tax year, as
specified. Prior to the enactment of the federal
healthcare reform legislation, the Internal Revenue Code
(IRC 152) defined a dependent as a qualifying child under
the age of 19 or under the age of 24 if the child is a full
time student, for purposes of providing an income exclusion
or deduction for health benefits provided to children.
For purposes of taxation of healthcare benefits, existing
state law conforms to federal law that was in effect as of
January 1, 2009 (as specified in IRC 152). Thus, despite
recently-enacted legislation, SB 1088 (Price), Chapter 660
of 2010 that requires group health plans and health
insurance issuers to make dependent coverage available for
children up to age 26, state tax law does not conform to
federal law providing favorable tax treatment for benefits
provided to adult children up to age 27.
This bill makes changes to state tax and unemployment
insurance laws to conform to specified provisions enacted
by federal healthcare reform legislation. Specifically,
this bill conforms to federal provisions that allow for an
exclusion or deduction from taxable income of costs to
extend health benefits to adult children under the age of
27, as follows:
1. Excludes from gross income the value of
employer-provided health coverage under an accident or
health plan for an employee's adult child who is under
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the age of 27 as of the end of the tax year. This
exclusion also applies to any reimbursements for medical
expenses provided under the under the accident or health
plan and reimbursements provided by an employer under
flexible spending arrangements.
2. Allows self-employed persons to deduct from taxable
income the cost of healthcare premiums for an adult
child who is under the age of 27 as of the end of the
tax year.
3. Excludes from gross income the value of any health
benefits provided for the adult child of a member of a
tax-exempt non-profit voluntary employees' beneficiary
association, if that child is under the age of 27 as of
the end of the tax year.
4. Exclude the value of employer-provided health benefits
for an adult child of an employee from the definition of
wages for purposes of employment taxes (Unemployment
Insurance, Employment Training Tax, and Disability
Insurance).
Comments
California does not automatically conform to changes in
federal law. 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. State tax law did not conform to changes made
in federal law after 2005 until last year, when the
Legislature enacted a bill conforming to changes through
January 1, 2009 (SB 401 �Wolk], Chapter 14, Statutes of
2010). Conformity is difficult despite its advantages and
reduced tax compliance costs, because the state may
disagree with Congress's tax policy changes, and conforming
can also significantly impact state revenues.
An employer has the burden of determining the amount to
withhold from an individual's wages. Because California
has not conformed to the federal health care tax
provisions, the employer has the task of dealing with
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different withholding requirements for federal and state
purposes. Currently, employers are individually
determining the fair market value of employer-provided
medical coverage for an adult child that exceeds the amount
an employee would otherwise pay for family coverage. The
task of reporting employee income has become more
complicated, time-consuming, and financially burdensome.
California has always conformed to health care exclusions.
Conformity eliminates confusion and simplifies the tax
process for employers, taxpayers and taxing authorities.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Tax revenue reduction $4,800 $38,000
$35,000General*
Employment tax revenue
unknown, minor impact Special**
*$40 million n 2013-14, $44 million in 2014-15 and ongoing.
**Unemployment Insurance Fund and disability Insurance Fund
SUPPORT : (Verified 3/18/11)
Aaron Read & Associates, LLC
American Federation of State, County and Municipal
Employees
Association of California Life and Health Insurance
Companies
Butte County Board of Supervisors
California Association of Health Plans
California Association of Joint Powers Authorities
California Association of Professional Scientists
California Association of Psychiatric Technicians
California Association of School Business Officials
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California Chamber of Commerce
California Coalition of Utility Employees
California Hospital Association
California Labor Federation
California Medical Association
California Nurses Association
California School Boards Association
California School Employees Association
California State Association of Electrical Workers
California State Employees Association
California State Pipe Trades Council
California Taxpayers Association
Children's Hospital Central California
County of Los Angeles
Eagle Rock Chamber of Commerce
International Elevator Constructors Union
Kern County Board of Supervisors
Livermore Valley Joint Unified School District
Merced County
National Federation of Independent Business
Parlier Chamber of commerce
Placer County Board of Supervisors
Professional Engineers in California Government
Simi Valley Chamber of Commerce
Spidell Publishing, Inc.
State Building and Construction Trades Council
TechAmerica
University of California
Western States Council of Sheet Metal Workers
ARGUMENTS IN SUPPORT : The author's office states, "With
an estimated 1.2 million young adults between the ages of
19-25 uninsured, many young adults find themselves without
medical coverage. 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. 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."
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ASSEMBLY FLOOR : 74-0, 3/3/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman,
Harkey, Hayashi, Roger Hern�ndez, Hill, Huber, Hueso,
Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Monning,
Morrell, Nestande, Nielsen, Olsen, Pan, Perea, V. Manuel
P�rez, Portantino, Silva, Skinner, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Fletcher, Hall, Mitchell, Norby, Smyth,
Vacancy
AGB:do 3/18/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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