Health care law could leave parents with extra taxes

February 7, 2011 6:42:06 PM PST
Californians may be in for an unwelcome surprise when they file their taxes in a couple of months. They may owe more than they thought because of a key change in the health care law. It is a benefit that helps young people, but may cost their parents.

The Federal Healthcare Reform Law brought relief for thousands of California parents last fall. It meant they could continue providing health insurance for their adult children up to the age of 26.

Judy Pipkin of Silicon Valley enrolled her 25-year-old daughter onto her husband's health plan even though it cost more to add an extra person.

"We're not rich people but our children need health insurance," Pipkin said. "What are we supposed to do?"

But as Californians are preparing their income tax returns, many of those parents are learning they now have a bigger tax bill. The state considers employer contributions to the health benefits of non-dependents as income.

For the Pipkins, that $4,000 benefit pushed them into a higher bracket and increased their tax liability.

"Our taxes are high as it is and we can't even claim our daughter on our taxes," Pipkin said.

Assemblyman Henry Perea, D-Fresno, is championing a proposal to exempt health benefits from taxable income, just like they are from federal taxes. A similar proposal failed last year.

"We want to make sure that as parents continue to work hard, continue to have their children on as dependents, that they're covered and not penalized," Perea said.

There is no formal opposition to the bill yet, but if parents have to pay more taxes, the financially struggling state would get a $12 million windfall.

Families like the Pipkins hope the Legislature passes the exemption as soon as possible. Otherwise, they might be forced to make a difficult decision.

"We were totally shocked and they were giving us the choice of taking her off the health plan," Pipkin said.

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