IRS Issues Guidance on Tax Treatment of Health Care Coverage for Adult Children Under Age 27
On April 27, the Internal Revenue Service issued Notice 2010-38, which addresses various questions relating to the tax treatment of health care coverage provided to nondependent adult children under the Patient Protection Act.1 The Notice primarily focuses on the tax treatment of coverage and the application of cafeteria plan rules if an employer voluntarily extends coverage to nondependent adult children in 2010. The Notice also discusses how these tax law changes affect the tax treatment of coverage that is already being provided to nondependent adult children under existing plans.
- Coverage for adult children who do not turn age 27 until after 2010 is tax-free beginning on March 30, 2010.
- If employers choose to cover adult children in 2010, they may amend their cafeteria plans in 2010 to permit employees:
- to pay with pretax dollars for coverage relating to their adult children; and
- to change (or make) health care flexible spending account (FSA) elections in 2010 as if their adult child(ren)’s becoming eligible were a change in family status under the cafeteria plan rules.
If you have any questions regarding this IRS Notice, please contact Philip L. Mowery (312-609-7642), Paul F. Russell (312-609-7740) or any other employee benefits attorney with whom you have worked.
FEDERAL TAX NOTICE: Treasury Regulations require us to inform you that any federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
1 References to the "Patient Protection Act" or "Act" are references to both the Patient Protection and Affordable Care Act that was signed into law on March 23, 2010 and the Health Care and Education Reconciliation Act of 2010 that was signed into law on March 30, 2010.