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posted Dec 6, 2010, 11:09 AM by Gary Jones   [ updated Dec 6, 2010, 11:11 AM ]

Health Care Reform - Update


This memo is being distributed in an effort to share with you any additional information and guidance that we receive about Health Care Reform.  On the Friday prior to Thanksgiving break, we were advised that the State of California has not changed its tax laws to conform to the Federal mandate that employers make medical coverage available to children of employees until those children turn age 26.

 

As a result, it is our understanding that the value of coverage under a health plan will be treated as the taxable California income of an employee for any child who is not a tax dependent of the employee.  This means that there may be additional withholding and Form W-2 reporting of income with respect to California income taxation on the value of health coverage for adult children who are not tax dependents.

 

The rules regarding who is and who is not a tax dependent are quite complex and beyond our ability to give advice.  However, we wanted you to be aware of this issue as soon as possible. (L. Bates, 11/2010)


Federal Withholding for January 2011

Federal income taxes are set to increase in January 2011. The Congress is close to completing work on federal income tax policy that will prevent this from happening, thus maintaining our current tax rates. If legislation is passed and signed by the President that prevents the increase, I am concerned that the IRS will be unable to communicate to employers the "new" (even though it is the current) tax rates. Employers' payroll systems are set to withhold the higher rates that are due to take effect January 1, 2011.

What this means to you is this: Your federal withholding may be higher than you expect for the month of January, thereby reducing your paycheck amount for January.

There are online calculators that can help you estimate the shortfall but I cannot verify their accuracy. The IRS calculator for withholding is here: http://www.irs.gov/individuals/article/0,,id=96196,00.html. However, it does not provide a quick and easy estimate of the change.

Please consider your personal budgets and how you might prepare yourselves for a reduction in take-home pay for the month of January.

When additional, accurate information is provided I will promptly contact you.
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