Law Passed on Tax Treatment of Adult Dependents

Senate Bill 203, authored by Senator Van Wanggaard and Representative Pat Strachota with the help of The Alliance, was signed into law by Governor Scott Walker as 2011 Wisconsin Act 49 on Friday, November 4, 2011.

The bill brings Wisconsin's tax code in line with federal tax code and eliminates the need to "impute income" for the value of the health insurance coverage provided to an adult child through the end of the tax year during which the child turns age 26. If you choose to define "dependent" more broadly than state and federal law, you will still have to contend with imputed income for state and federal tax purposes.

The change is retroactive to January 1, 2011, which means individuals will see the impact on their 2011 tax returns. When you prepare W-2s for employees who have had amounts withheld this year for the coverage of adult dependents, you will need to adjust income to reflect 2011 wages minus any "imputed income" for adult dependent coverage. This may trigger a larger return or lower the amount the individual owes for taxes.

The Department has prepared guidance that instructs employers to refrain from reporting imputed income for qualifying adult dependents on employees' 2011 W-2s. If you have questions you may contact the Wisconsin Department of Revenue Customer Service Bureau, 608.266.2776, or dorwithholdingtax@revenue.wi.gov.

The following communication can be used to communicate this change to your employees.

Communication document for employees

We thank all members who took action by contacting their legislator in support of this bill. Members also provided feedback on how they have been withholding amounts for adult dependent coverage, which was passed on to the Wisconsin Department of Revenue and was used to create guidance on the situation. If you have any comments, please contact Jesse Oberloh, 800.223.4139 x 6645.

Kind Regards,