While lawmakers across the country battle over the future of healthcare reform, it is worth noting that some states have already adopted portions of the federal reform, and it will impact how employees are taxed by the state in 2011. In particular, Ohio and Kentucky differ on how they account for healthcare benefits for adult children.

The healthcare reform legislation that was passed in March 2010 allows parents to include adult children on their employer-sponsored insurance plan and pay for that coverage with pre-tax dollars, through the year in which the child turns 26. Ohio adopted the tax exemption and extended the age limit to 28.

Kentucky did not adopt the tax exemption. Effective January 1, 2011, the state is advising employers to treat any amount paid toward insuring adult children as an after-tax contribution. Thus, some employees will show higher Kentucky wages than federal wages on Form W-2.

Meanwhile, a federal judge in Florida ruled that the Patient Protection and Affordable Care Act is unconstitutional, which adds to the uncertainty surrounding the ongoing healthcare overhaul. Judge Roger Vinson ruled January 31 that the law violates the Commerce Clause of the Constitution by mandating that all individuals have health insurance. The lawsuit was filed on behalf of elected officials from 26 states, two private citizens and the National Federation of Independent Business.

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