August 4, 2011Client Alert

Wisconsin Budget Act Amends Dependent Coverage Law, But Not Tax Implications

On June 26, 2011, Governor Scott Walker signed into law the biennial Budget Bill. The Wisconsin Budget Bill modified a provision in the Wisconsin Statutes that required employers with insured group health plans (and self-funded public sector health plans) that offer dependent health insurance coverage to their employees must include coverage for certain adult dependent children up to the day before the child’s 27th birthday. Specifically, Wisconsin law now largely follows the requirements of the federal health care reform law (the Patient Protection and Affordable Care Act (“PPACA”)), which requires that employers provide coverage to adult children of employees up to the day before the child’s 26th birthday.


Effective Date

The change is generally effective on January 1, 2012. However, the change is effective at a later date when the terms of a collective bargaining agreement cover the subject employees/plan. In such case, the change is effective on the later of the day on which the collective bargaining agreement expires or the date on which the collective bargaining agreement is extended, modified, or renewed.


Wisconsin employers sponsoring plans that were affected by the prior Wisconsin dependent coverage law should note that they are still required to provide coverage to dependents up to their 27th birthday through at least the end of 2011 (and possibly longer where a collective bargaining agreement defines the coverage).


Tax Implications Unchanged

The Wisconsin Budget Bill did not change the disparity that exists between the Wisconsin and federal tax laws. Shortly after health care reform passed, Congress amended the federal tax law to exempt the value of coverage provided to certain adult children, whether or not such adult children qualified as a tax dependent. However, Congress did not modify the definition of a tax dependent. Wisconsin law still provides that dependent coverage provided to an employee for a child who is not a tax dependent must be included in the employee’s income. Thus, Wisconsin employers that provide dependent health coverage (insured or self-funded) to their employees must, for Wisconsin income tax purposes, impute as income the fair market value of health insurance coverage provided to employees for their children who are not tax dependents.


In the wake of the Wisconsin Budget Bill change, employers providing insured coverage (or self-funded public sector coverage) will want to examine their plan documents and summary plan descriptions to ensure that the plan accurately describes the appropriate classes of covered dependents.


In addition, all employers who have not previously taken steps to ensure that their payroll practices properly account for the imputed income issues should take immediate steps to do so. Wisconsin employers may utilize a number of different approaches in this regard.

back to top