Federal/Wisconsin Discrepancy in the Affordable Care Act

Wisconsin has not yet adopted the provision in the federal Health Care and Education Reconciliation Act of 2010 (Affordable Care Act) that allows an employee to exclude employer-provided accident or health insurance benefits for an employee’s child under the age of 27 from gross income. For Wisconsin tax purposes, a child under age 27 must qualify as a dependant for the benefits to be excluded from gross income. This Wisconsin Department of Revenue has updated its guidance on this issue to note that the discrepancy also includes medical flexible spending accounts (FSA). If an adult child does not qualify as a dependant, reimbursements from a medical FSA for medical expenses incurred by an adult child are taxable income for Wisconsin tax purposes. The updated guidance also includes information on how the fair market value of health insurance coverage is determined if an adult child does not qualify as a dependant. Employers include the taxable portion of benefits in box 16 of the employee’s Form W-2.