Category Archives: Affordable Care Act

Register Now! Annual Compliance/Best Practices Seminar

WHEN: May 11, 2017

8:00 a.m. – 12:00 p.m.

WHERE: Sheraton Milwaukee Brookfield Hotel

375 South Moorland Road

Brookfield, WI

Registration and a continental breakfast will be served beginning at 7:30 a.m.  Click here to register.

This COMPLIMENTARY half-day event will address the latest labor and employment topics impacting employers including:

  • Annual Employment Law Update (including recent developments in immigration, the Affordable Care Act and white collar overtime regulations)
  • Social Media Pitfalls and Best Practices
  • FMLA Update – A Best Practices Review
  • Drafting, Enforcing and Litigating Confidentiality, Non-Solicitation and Non-Competition Agreements
  • Navigating the ADA, FMLA and Worker’s Compensation


On April 20, 2015, the Equal Employment Opportunity Commission published its proposed regulations regulating employer wellness plans under the Americans with Disabilities Act.  The proposed rules attempt to strike a balance between allowing wellness plans to offer incentives for employee participation while, at the same time, limiting incentives to defined percentages in order to prevent economic coercion that could render a participant’s provision of medical information involuntary.

While the proposed rules will be reviewed in depth on April 28, 2015 at our Annual Compliance/Best Practice Seminar (please register by clicking here), here are some of the basics regarding the proposed rules:

  • The proposed rules re-assert the EEOC’s position that employee health programs that include disability-related inquiries or medical examination (including inquiries or medical examinations) that are part of a health risk assessment or medical history must be voluntary in order to comply with the Americans with Disabilities Act. By contrast, employee health programs that do not include disability-related inquiries or medical examinations are not covered by the proposed rules. While a smoking cessation program that asks participants if they smoke and provide information regarding how to quit is not subject to the proposed rules, a biometric screening or other medical examination that tests for nicotine or tobacco is a medical examination.
  • The proposed rules adopt the already existing HIPAA limitation, as amended by the Affordable Care Act, on wellness plan incentives. The proposed rules clarify that an employer may offer limited incentives up to a maximum of 30% of the total cost of employee-only coverage to promote an employee’s participation in a wellness program that includes disability-related inquiries or medical examinations as long as participation is voluntary. Note that the EEOC does not distinguish between whether the incentive is provided in the form of a reward or penalty. While the proposed rules acknowledge the HIPAA/ACA limitation which permits plans to offer incentives as high as 50% of the total cost of employee coverage for tobacco-related wellness programs, such as smoking cessation programs, the proposed rules are clear that such programs are not covered by the regulations. Again, programs that do not contain disability-related inquiries or medical examination are not covered by the proposed rules.
  • The proposed rules specifically define “voluntary,” a critical term to the ADA analysis. Companies should ensure their wellness plans that includes disability-related inquiries or medical examinations are be voluntary and comply with the ADA by ensuring the plan:
    • Does not require employees to participate;
    • Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation or limit the extent of such coverage (except pursuant to allowed incentives); and
    • Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA, at 42 U.S.C. 12203.
  • In addition, in order to be voluntary, a plan must provide notice to participants that:
    • Is written so that employees from whom the information is being gathered are reasonably likely to understand it;
    • Describes the type of medical information that will be obtained and the specific purpose for which it will be used; and,
    • Describes the restrictions on disclosure of the employee’s medical information, the employer representatives with whom the information will be shared and the methods the employer will employ to prevent improper disclosure of the medical information including HIPAA-related protections.
  • Employer wellness plans should provide opportunities for reasonable accommodation for employees with disabilities to fully participate and earn any reward or avoid any penalty offered by the plan, absent undue hardship, by providing a reasonable alternative standard for the employee or providing an individual waiver. For example, if an employer’s wellness plan’s outcome-based program requires employees to achieve an average blood sugar level of 140 or less, the employer may have to provide a reasonable alternative standard to allow participation by diabetic employee for whom that goal is not achievable.

More information regarding the proposed rules and best practices for ensuring your Company’s wellness plan complies with the proposed rules will be provided on April 28, 2015. We will also present an annual review of developments in labor and employment law and discuss the National Labor Relations Board’s “quickie” election rules which went into effect on April 15, 2015, among other topics. Please register to join us for the half-day educational seminar by clicking here.

EEOC Challenges Employer Wellness Programs

November 13, 2014

By: Alan M. Levy and Samantha J. Wood

The Affordable Care Act (ACA) has recently popularized employer wellness programs. The Department of Labor and Health and Human Services are presenting the ACA as promoting such programs by encouraging employers to offer “rewards” for participation. According to the final regulations, such “rewards” can include obtaining a benefit (such as a discount or rebate of a premium or contribution, or any financial or other incentive) and/or avoiding a penalty (such as the absence of a surcharge or other financial or nonfinancial disincentive). But the Equal Employment Opportunity Commission (EEOC) is now acting to remind employers that their programs’ “rewards” must comply with other laws.

In the past few months, the EEOC has challenged three employer wellness programs alleging that the programs, which offer financial incentives to those who participate, violate the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). The EEOC reasons that the programs’ financial incentives constitute unlawful penalties and inducements.

The ADA prohibits employers from requiring their employees to submit to medical examinations or answer medical inquiries, unless such exam or inquiry is shown to be job-related and consistent with business necessity. However, the ADA permits employers to conduct medical exams and activities without having to satisfy the job-related/business necessity components as long as participation is voluntary, the information is kept confidential, and the information is not used to discriminate against employees. The EEOC has taken the position that a wellness program is “voluntary” as long as an employer neither requires participation nor penalizes employees who do not participate. In the recent litigation, the EEOC has maintained that large financial incentives affect the voluntariness of the programs.

GINA prohibits plans and issuers from collecting genetic information (including family medical history) prior to or in connection with enrollment, or at any time for underwriting purposes. A plan cannot offer rewards or inducement in return for genetic information. Accordingly, in the recent litigation, the EEOC has maintained that programs which offer financial incentives in exchange for spousal health information are unlawful inducements for one’s family medical history.

The EEOC brought its first lawsuit in the Eastern District of Wisconsin, challenging Orion Energy Systems, Inc.’s wellness program. Orion’s program required employees to complete a health risk assessment, to self-disclose their medical histories, and to have blood work performed. If the employees participated in the program, Orion would cover the entire amount of the employee’s health care costs. However, if an employee declined participation, s/he would be required to pay the entire premium cost for coverage ($413.43/month for single coverage or $744.16/month for family coverage), as well as a $50 non-participation fee. The EEOC has alleged that such financial incentive/disincentive is so great that it constitutes a penalty in violation of the ADA.

On September 30, 2014, the EEOC challenged Flambeau Inc.’s wellness program in the Western District of Wisconsin. Flambeau’s wellness program required employees to complete biometric testing and a health risk assessment, which required the employees to self-disclose their medical histories and have blood work and measurements performed. Employees who completed the testing were only obligated to pay 25 percent of the premium cost of their health insurance. However, employees who did not complete the testing were subjected to termination of health insurance and were required to pay the entire premium cost for COBRA health insurance coverage. As in the Orion Energy Systems case, the EEOC has alleged that Flambeau’s program is not job-related or consistent with business necessity and is not voluntary due to the financial penalty.

The EEOC’s most recent attack was brought October 27, 2014, against Honeywell International Inc., in the District Court of Minnesota. Honeywell’s wellness program required its employees and their spouses to undergo biometric testing. If the employees and their spouses did not take the biometric test, the employees risked losing the employer’s contributions to their health savings accounts (which could be up to $1500); would be charged a $500 surcharge that would be applied to their 2015 medical plan costs; would be charged a $1000 tobacco surcharge even if the employee chose not to undergo the testing for reasons other than smoking; and would be charged another $1000 tobacco surcharge if his/her spouse did not participate. In total, an employee could suffer a penalty of up to $4000. Again the EEOC has alleged that the wellness program is not job-related or consistent with business necessity and is not voluntary due to the large financial penalties. In addition, the EEOC has alleged that the program violates GINA’s proscription against providing inducements to an employee to obtain that employee’s family medical history.

Honeywell disputes that its financial incentives are in violation of the law, as such incentives/disincentives are allowed under the ACA. Indeed, prior to the ACA, the maximum financial incentive that could be offered for health-contingent wellness programs could not exceed 20 percent of the health plan’s premiums. However, the ACA increased the financial incentive allowance, permitting financial incentives of up to 50 percent of the premium for health-contingent wellness programs designed to prevent or reduce tobacco use, and 30 percent of the premiums for all other health-contingent wellness programs. Accordingly, if the EEOC’s position is adopted, which states that such financial incentives are penalties under the ADA and unlawful inducements under GINA, it would diminish the DOL and HHS’s final regulations affecting the financial incentive allowance.

Accordingly, employers offering health-contingent wellness program incentives should watch for the resolution of this litigation while keeping in mind their obligations to comply with other laws. Employers should be aware that offering large wellness program incentives could not only violate the ADA and GINA, but could also make their health plans unaffordable or inadequate under the ACA, which requires large employers to offer coverage that provides minimum value and affordability. Coverage is affordable if the employee’s required contribution to the plan does not exceed 9.5 percent of the employee’s household income; and a plan provides minimum value if the plan’s actuarial value is at least 60 percent. If an employer offers a premium discount for participation in a wellness program (that is not connected to tobacco use), employers must remember that the determination as to whether the plan is affordable and offers the minimum value, will be based on the higher deductible that applies to non-participating individuals.

If you have questions about this material, please contact Alan M. Levy or Samantha J. Wood by email at or, or any other attorney you have been working with here at Lindner & Marsack, S.C.

New Regulations Allow Orientation Period Prior To ACA’s Maximum Waiting Period Before Mandatory Health Plan Coverage

The Affordable Care Act (“ACA”) requires a “large employer” (50 or more full time equivalent employees) to provide health plan coverage to “full time” employees (30 or more hours per week) within 90 days of hire. On June 25, 2014, IRS, DOL, and HHS published final regulations which allow an employee orientation period of up to 30 days to precede that 90-day waiting period.

Specifically, the final regulations provide that being otherwise eligible to enroll in a plan means having met the plan’s substantive eligibility conditions (for example, being in an eligible job classification, achieving job-related licensure requirements specified in the plan’s terms, or satisfying a reasonable and bona fide employment-based orientation period). Under the final regulations, after an individual is determined to be otherwise eligible for coverage under the terms of the plan, any waiting period may not extend beyond 90 days, and all calendar days are counted beginning on the enrollment date, including weekends and holidays.

IRS, 26 CFR Part 54, Reg-122706-12, RIN 1545-BL97, p. 6; DOL EBSA, 29 CFR Part 2590, RIN 1210-AB61; HHS 45 CFR Part 147, RIN 0938-AR77.

Saying that, “the Departments do not intend to call into question the reasonableness of short, bona fide orientation periods,” the Regulation adds that, for fear of abuse, they will apply a “clear maximum” to prevent “mere subterfuge for the passage of time.” If an orientation period for training and evaluation is “longer than one month that precedes a waiting period, the Departments refer back to the general rule, which provides that the 90-day period begins after an individual is otherwise eligible to enroll under the terms of a group health plan.” Id., pp. 6-7.

Two definitional elements should be noted:

  1. “[O]ne month would be determined by adding one calendar month and subtracting one calendar day, measured from an employee’s start date in a position that is otherwise eligible for coverage.” Id.
  2. This rule applies to plan years beginning on or after January 1, 2015. Until then, the proposed regulations will be considered in effect. Under the proposed regulations, an orientation period would be allowed if it “did not exceed one month and the maximum 90-day waiting period would begin on the first day after the orientation period.” Id., p. 5. The final version is not considered to be a “substantive change.”

The concern with possible abuse or misuse of this new rule has led to a “bright line” test which simply counts the relevant days with no attention to the details of job requirements and how the employer determines within 30 days whether the new employee can satisfy them.

If you have any questions about this new regulation, please contact Alan Levy, the Lindner & Marsack attorney who focuses on employee benefits.


By: Alan M. Levy

Most employer mandate penalties for not satisfying Obamacare coverage requirements have now been waived until December 31, 2015. On February 10, 2014, the Internal Revenue Service filed final regulations on “Employer Shared Responsibility” under the Affordable Care Act (“ACA”), Agency Document Number 2014-03082 (official publication date January 12, 2014). The new regulations announced that employers with 50 to 99 full-time employees and/or full-time equivalents (“FTEs”) have until 2016 before any penalties will be applied to them for failure to provide affordable and adequate health insurance as defined in the Act. In addition, employers with 100 or more employees will not be penalized during 2015 if they provide adequate, affordable insurance for at least 70% (instead of 95%) of their employees. Final rules were also provided as to how to determine which employers and employees are covered by the ACA, how to calculate employer penalties under the law, and how those penalties will be collected. They also state that volunteers such as firefighters and EMTs are not to be counted as full-time employees under the ACA.

The principal requirements for employers of 50 to 99 FTEs to retain the waiver are that they:

1. Must employ, on average, at least 50 and no more than 99 FTEs for all business days in 2014;

2. May not reduce the size of their workforce or the overall hours of service of their employees in order to qualify for this transitional relief/waiver; and

3. May not eliminate or materially reduce coverage nor reduce employer contribution amounts below 95% of what was in place on February 9, 2014.

Employers of 100 or more FTEs lose the waiver if one of their covered employees obtains a premium tax credit in 2015. Thus, the “transitional relief” is cancelled if any full-time employee of the employer with more than 100 FTEs receives a premium tax credit from a Marketplace/Exchange because the plan which was offered to at least 70% of the workforce is not affordable or not adequate for that individual. Cancellation will also occur if an employer of 50 to 99 FTEs does not maintain its workforce’s size or hours, or if the health care coverage it does offer falls below that which it had in place as of February 9, 2014.

These new rules are clearly a relief to many employers. However, they are complex; the need for further clarification is inevitable. For the moment, Treasury and IRS has simply said:

“While about 96 percent of employers are not subject to the employer responsibility provision, for those employers that are, we will continue to make the compliance process simpler and easier to navigate . . . [these] regulations phase in the standards to ensure that larger employers either offer quality coverage or make an employer responsibility payment starting in 2015 . . . .”

Should you have any questions about these new rules, please contact Alan Levy, the Lindner & Marsack attorney who focuses on employee benefits issues.


By: Alan M. Levy

Every employer subject to the federal Fair Labor Standards Act (“FLSA”) is obligated to notify each of its employees of health insurance coverage options effective January 1, 2014. This notice must be provided by October 1, 2013 or, if later, at the time of the employee’s hiring. The U.S. Department of Labor (“DOL”) has issued different model notices for employers which do or do not provide health insurance to their employees.

1. Which employers and employees are subject to this requirement?

Every employer subject to the FLSA must issue this notice. Most employers with annual dollar income of $500,000.00 or more are subject to this statute, as are most non-retail employers with annual dollar income of at least $50,000.00. In addition, the FLSA applies to hospitals, residential care entities, schools, universities and colleges, and federal, state, and local government agencies.

These employers must deliver the required notices to all employees, including part-time employees, regardless of whether the employees are current plan participants.

2. What are the rules for delivery of the notice?

The notice must be delivered to all current employees on or before October 1, 2013. It must be in writing, sent either by first-class mail or by an electronic mail system which meets the DOL requirements in 29 C.F.R. § 2520.104b-1(c). The notice must be “written in a manner calculated to be understood by the average employee.” This is the same standard for most benefit documents which must be provided to employees.

3. What is the required content of the notice?

The DOL has provided two templates for the notice – one for employers which provide a health plan and one for those which do not. The notice must inform the employee of the existence of a Marketplace (called an “Exchange” in the statute), the services it offers, and its contact information. It must state whether the employer’s plan pays for less than 60% of the benefits which it provides, that the employee may be eligible for a tax credit to offset his/her premium cost, that purchase of a plan through the Marketplace may cause loss of any employer contribution toward payment of the premium, and that payment through the Marketplace may be excluded from federal income tax.

Copies of the DOL model notices can be found at to this E-Alert and may be found at Additional information is in the DOL’s Technical Release 2013-02.

If you have any other questions about these notices, please contact Attorney Alan M. Levy, who leads the Lindner & Marsack, S.C. employee benefit practice.


By: Alan M. Levy

A major element of the Affordable Care Act (the “ACA,” a/k/a “Obamacare”) is the prohibition against denying coverage due to a pre- existing condition or otherwise discriminating in coverage, premium cost, or benefits because of an individual’s health condition. “Wellness programs” typically seek to incentivize a healthy lifestyle by rewarding organized efforts to exercise, diet, stop smoking, or take similar health measures. Because wellness programs might be perceived as discriminatory through higher premium costs due to health conditions of those who do not use them, the ACA provides an exception for those which offer “rewards,” but not for penalties. Effective for plan years beginning on or after January 1, 2014, final regulations issued by IRS, HHS, and DOL apply the exception to all group health plans (whether or not grandfathered, insured, or self-insured) and all group health insurance, but not to individual health insurance.

The final rules permit:

(1) “Participating wellness programs” which reimburse an employee for all or part of the cost of utilizing health programs such as membership in a fitness center, a diagnostic testing program, or health education. The payment toward the

employee’s cost for such participation is limited to an amount equal to 30% of premium cost.

(2) “Health–contingent wellness programs” which involve rewarding an employee for satisfying health-related standards such as diet, exercise, or smoking cessation.

  1. a)  “Activity–only wellness programs” reward the employee for simply participating in the program, such as adhering to a daily exercise regimen regardless of outcome.
  2. b)  “Outcome–related wellness programs” reward the employee for attaining or maintaining a standard, such as succeeding in cessation of smoking, losing weight, or maintaining a prescribed blood pressure level.

One issue with the health-contingent programs is the treatment of people whose personal health limitations prevent them from gaining the reward.

For example, a wheelchair bound person could not participate in a lunch hour walking program or satisfy a goal of walking ten miles per week. In cases where personal health conditions limit or prevent successful participation in, and obtaining a reward from, the wellness program, particularly if it is outcome–based, accommodations must be offered in the form of a “reasonable alternative standard” which must be made available to all participants, regardless of their health status, who cannot satisfy the initial standards. All health–contingent programs are subject to five criteria to come under the wellness program exception to the anti- discrimination rules; they must:

  1. (1)  Be reasonably designed to promote health or prevent disease.
  2. (2)  Provide the participant a reasonable chance of improvinghealth or preventing disease.
  3. (3)  Not be overly burdensome.
  4. (4)  Not be a subterfuge for discrimination based on personal healthfactors.
  5. (5)  Not use a highly suspect method to promote health or preventdisease.

The maximum reward a plan can provide for satisfactory participation in a wellness program is the equivalent of 30% of premium cost, except that a 50% reward can be given for satisfaction of programs to prevent or reduce tobacco use.

Because of the wide variety of potential wellness programs and the thus- far non-specific aspects of reasonable alternative standards, “the Departments [which issued these final regulations] anticipate issuing future sub-regulatory guidelines to provide additional clarity and potentially proposing modifications to this final rule as necessary.” A copy of these “final” regulations can be found in the Federal Register / Vol. 78, No. 106, 6/3/13; 26 CFR, TD 9620, RIN 1210-AB55, CMS-9979-F.

If you have questions about these rules, please contact Lindner & Marsack Attorney Alan Levy, who focuses on employee benefits.


By:  John E. Murray

The Affordable Care Act (ACA) created a new retaliation claim for employees.  An employee can bring a claim for retaliation if they have suffered some adverse employment action because:

  • The employee receives a subsidy to purchase health insurance;
  • The employee provides information to an employer or a government agency regarding a real or perceived violation of the ACA;
  • The employee testifies in a proceeding regarding a violation of the ACA;
  • The employee assists or participates in an investigation of a possible violation of the ACA; or
  • The employee objects to or refuses to participate in any activity, policy, practice or assigned task which the employee reasonably believes to be a violation of the ACA.

The Department of Labor’s Occupational Safety and Health Administration (OSHA) has issued interim rules establishing the procedure for bringing these claims.  First, employees must file a complaint with OSHA within 180 days of the alleged violation.  OSHA will share the complaint with the IRS, the Treasury Department, the Department of Health and Human Services, and/or any other relevant branches of the Department of Labor.

Complaints are screened to determine if the employee has made a plausible argument that retaliation has occurred.  If OSHA believes a violation may have occurred, it can issue a preliminary order reinstating the employee.  Regardless of whether such an order is issued, employers typically will have 20 days to submit a position statement.  Sixty days after filing that position statement, OSHA will issue its findings and conclusions.

If OSHA determines a violation has occurred, it can order reinstatement, back pay, compensatory damages (for emotional distress), interest on the damages awarded, attorney fees and costs.  Within 30 days, either party can file objections or a request for a hearing.  Reinstatement may be ordered even when objections have been filed.

Hearings are held before an administrative law judge.  At this hearing, the Complainant must prove that protected activity was a contributing factor in the challenged adverse employment decision.  The protected activity can be one of several factors leading to the challenged employment decision.  The employer then must prove, by clear and convincing evidence, that the same decision would have been made regardless of any protected activity.

The ALJ will issue a written decision.  This decision becomes final unless either party files objections with the Department of Labor’s Administrative Review Board (ARB).  Objections must be filed within 14 days.  The ARB has the right to accept or reject the request for review.  If the ARB does not accept the request for review, the parties can appeal the ALJ’s decision to the relevant federal court of appeals.  If the ARB reviews the decision, it must issue its own decision within 120 days after all briefs have been submitted.  The parties then have 60 days to appeal the ARB’s decision to the court of appeals.

Employees also have the right to go into federal court any time before a final decision has been issued by the Department of Labor.  Employees simply dismiss their administrative claim and pursue it in federal court.  Retaliation claims will be tried to a jury.  Employees can recover reinstatement, back pay, compensatory damages, attorney fees and costs.

The retaliation provisions of the ACA create another avenue for current and former employees to challenge discharge, discipline, or any other employment decision with which they disagree.  Because of the relatively short timeframes associated with these claims, it is critical for employers to carefully document the reasons for any adverse employment decision which affects an employee who may be engaged in activity the ACA views as protected.

If you have questions about this article, or steps you can take to minimize exposure to these retaliation claims, please call John Murray at 414-226-4818, or call any other Lindner & Marsack attorney at 414-273-3910.

– See more at:


By:  Alan M. Levy

In what was probably the most eagerly-awaited Supreme Court decision since Bush v. Gore, a majority of Chief Justice John Roberts and the Court’s four liberals have held that the “individual mandate” in the Patient Protection and Affordable Care Act (often called “Obamacare”) is constitutional under Congress’s taxing authority.  National Federation of Independent Business, et al. v. Sebelius, et al., 567 U.S. ____, Case No. 11-393 (6/28/12). The law’s supporters have consistently argued that the mandate is necessary so that healthy people share in the costs of the risk pool, and people do not delay their enrollment until already sick because the law prohibits exclusion of preexisting conditions.

In reaching this result, Chief Justice Roberts said that the Anti-Injunction Act (which prevents restraint of a tax law until the tax is collected) does not apply because Congress labeled the mandate as a “penalty,” not a “tax”.  The Commerce Clause was also held inapplicable because this law compels individuals to become active in commerce by purchasing a product rather than regulates how commerce is conducted.

Because the Court is required, if at all possible, to interpret every Congressional action in a way that makes it constitutional, the Chief Justice then went on to rule that the mandate “may be reasonably characterized as a tax,” noting that it is “not so high that there is really no choice but to buy health insurance,” is collected by IRS, and is not a punishment, but an alternative.  This “tax on going without health insurance” was found permissible.

Finally, the Chief Justice and two of the liberals joined the dissenters in ruling that the expansion of Medicaid by each state is unconstitutional insofar as it takes away federal support for other parts of the state’s Medicaid program if the state declines such expansion.  That is, a state cannot be threatened with loss of support for part of its current Medicaid program because it declined to expand that program to include all adults with income of less than 133% of the federal poverty level.

The transition from “penalty” to “tax” in two different contexts will probably raise questions and incite criticism from the opponents of the law.  Further, this finding of constitutionality does not prevent a future Congressional action to modify or eliminate the statute.  However, some popular aspects of the law are already in place, (e.g., dependent care until age 26, elimination of caps on lifetime maximum benefits, phase out of pre-existing conditions) while the mandate itself is not due to take effect until 2014.  Further debate and possible amendment are inevitable.

Lindner & Marsack will continue to monitor the evolution of this statute and other decisions, and will report developments to you as they occur.  If you have any questions, please contact Alan Levy.


By: Alan M. Levy

On November 4, 2011, Wisconsin ceased requiring that employers withhold state income tax on the imputed cost of their employees’ health insurance premiums for children who were dependents as defined by federal, but not by state law.

Last year’s federal health care legislation provided that the children of employees participating in their employers’ health care programs must be treated as covered dependents until the end of the tax year in which they become 26 years of age. This “dependent” status no longer changed if, for example, the child had a job by which he/she could obtain health insurance, was married, or was not a student. While the Internal Revenue Code treated this expansion of coverage as tax-free, Wisconsin did not amend its tax code accordingly. Thus, an adult child could have dependent coverage tax free for IRS purposes, but the employer had to compute the portion of that benefit cost attributable to the child and then withhold that amount for state income tax of the parent-employee.

2011 Wisconsin Act 49 revokes this tax rule retroactively to January 1, 2011. Withholding the tax on the imputed income should cease immediately. However, no refund should be made by the employer; the amount withheld thus far will be credited as an excess tax payment on the employee’s state tax return for 2011 income.

One caution: the new Wisconsin rule is only parallel to the federal rule: it ends with the end of the tax year in which the child reaches age 26. If, for whatever reason (unless exempt for an unrelated reason), the child continues as a dependent on the parent’s employer-sponsored health insurance after that year, the imputed income and state withholding tax apply as before.

The employer should be sure to include on the employee’s W-2 form the full amount withheld for this benefit prior to the law change so it can be correctly and entirely treated as tax paid and thus subject to credit and/or refund.

If there are any questions about this new rule, please contact Alan Levy  at Lindner & Marsack, S.C.