New California Law Excludes Certain Health Care Reimbursements from Employees’ State Taxable Income

California has adopted a new law excluding from gross income, for state personal income tax purposes, any amount received by an employee from an employer to compensate for additional federal income taxes incurred by the employee from employer-provided health benefits because of the federal government’s failure to recognize same-sex spouses or domestic partners as the employee’s spouse for federal income tax purposes. This exclusion also includes any “grossed-up” amounts the employer provided to offset any taxes incurred by the employee on such reimbursement. The new law covers same-sex couples who are married or registered domestic partners whose employers reimburse them for federal taxes the couples pay on health care benefits for their partner and dependents. The exclusion applies to tax years 2013 to 2018.