PA and the new Health Care Law

[Dusty2004]

A friend of mine also does taxes and received a wierd call from a client. I have not seen the letter and he did not either when we spoke but the basis of the letter sent by the employer was

"PA has not accepted the part of the new Health Care Law with regards to the children being covered by their parents Health Care Plan after college is completed. This will result in employees who have a child covered by the Health Care Plan after college and before age 27 to have additional taxable income for PA. You should adjust your withholding appropriately."

Has anyone heard anything similar? Would the cost of this benefit be taxable income to PA residents?

Thanks,

Dusty

[Nashville]

Revenue Grab

Sounds like a Revenue Grab by a desperate state to me. Apparently PA thinks they can bail out of the tax-free provisions of §125 by simply freezing tax-free status to pre-Obamacare levels.

Can they do this? Apparently they are trying. It is almost assured someone in PA is going to take this to court, first in a PA court and then possibly in a Federal court. The key is whether this interpretation was supported by legislative vote or not. If PA lawmakers voted to do this, it is almost a sure thing that it would hold up. If they did, and left it to the Revenue Dept to do this drastic interpretation, it could slug out in court but I believe PA would eventually lose.

[Dusty2004]

Nashville

Thanks - your thinking and mine are similar. I will let everyone know what I find out (if anything).

Dusty

[Gary2]

Can they do this? Apparently they are trying. It is almost assured someone in PA is going to take this to court, first in a PA court and then possibly in a Federal court. The key is whether this interpretation was supported by legislative vote or not. If PA lawmakers voted to do this, it is almost a sure thing that it would hold up. If they did, and left it to the Revenue Dept to do this drastic interpretation, it could slug out in court but I believe PA would eventually lose.

My guess is that it's probably more like this: If the existing PA law says that health benefits aren't taxable if they're paid to someone who qualifies as a dependent on the federal return or someone who qualifies as a dependent under specific PA rules, then they're probably correct. But if the existing PA law says that health benefits aren't taxable to PA if they're not taxable to the feds (without referencing "dependent", then this would be wrong.

I haven't looked up the specific PA law, but I wouldn't be at all surprised if the wording makes it so clear, one way or another, that no one would even consider wasting time in court - unless there's some provision in the federal legislation to apply.