Not many states have had time to react to the Affordable Care Act. So they are beginning to advise payroll professionals on how to handle reporting and taxation for 2010. Minnesota is the latest to give us some guidance.
The 2010 Minnesota State Legislature did not enact legislation incorporating into state law any of the changes to the IRC contained in the Affordable Care Act. So for the definition of wages payroll departments will have to include the fair market value of insurance benefits provided to nondependent adult children as taxable wages for 2010.
It appears that this will be a growing trend for the rest of the states with income taxes. And I think it will also be a trend for the SUI taxable wages as well.
It would be a great idea if payroll departments get out in front of this by informing employees of the tax consequences of this now before the employee gets hit with a big state income tax bill next year. Employees may want to adjust state withholding to compensate while they still have some time left.
How are you handling the state taxation of adult children insurance coverage in your department? Let us hear from you.