Dear Friend,
As promised, we are conveying the just-now-released-official guidance from the California Economic Development Department regarding overage dependent taxation in this state. This only applies to those of you who issued W-2s that accounted for the cost of coverage for an overage dependent in California (those of you who did *NOT* do so, feel free to ignore this article in its entirety).
For 2010, employers who calculated a fair market value benefit amount as imputed income for California Personal Income Tax (PIT) wages for their employees and subsequently withheld PIT on this value should issue Form W-2C to impacted employees that reflect the correct PIT wage amount. Employers can amend their California state payroll tax returns using our Tax and Wage Adjustment Form (DE 678).
For 2011, if employers calculated a fair market value of the health insurance premium and withheld the applicable PIT in the first quarter and have already filed their Quarterly Contribution Return and Report of Wages (DE 9), they can amend the return by using our Quarterly Contribution and Wage Adjustment Form (DE 9ADJ).
For employers who have calculated PIT wages and withheld PIT from their employees for the first quarter but not yet filed the DE 9 and Quarterly Contribution and Wage Adjustment Form (Continuation) (DE 9C), you may choose to file and report the correct wages and withholding amounts while revising your payroll process internally for the over-reporting and withholding.
Please refer to the 2011 California Employer`s Guide (DE 44), for information on how to amend payroll tax returns. You can access the above forms on our web site on EDD`s Forms and Publications.
Further California taxation-amendment information (this information pertaining to employees) can be found at:
http://www.ftb.ca.gov/professionals/taxnews/Patient_Protection_and_Affordable_Care_Act.shtml
How to File:
Form 540 - On an original tax return
If the employer issued Form W-2 including the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C.
Self-employed individuals may deduct the health insurance premium paid for nondependent adult children under age 27. No California adjustment is needed.
Form 540X “ On a previously-filed tax return
If you have already filed Form 540 with Form W-2 that included the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C. File Form 540X to report the reduction in your California wages.
For self-employed individuals who reported a California adjustment excluding the health insurance premium paid for nondependent adult children, file Form 540X to report the allowed deduction for California.
Best Regards,
Michael J. Cramer, J.D.
Compliance Officer, Beneflex Insurance Services, Inc.
