As a result of changes made by the recently enacted Patient Protection and Affordable Care Act, health coverage provided for an employee’s children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010. These changes immediately allow employers with Section 125 cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit.
IRS Notice 2010-38 explains these changes and provides further guidance.
This expanded health care tax benefit applies to employer-provided coverage and reimbursements including cafeteria plans, flexible spending arrangements (FSA), health reimbursement arrangements (HRA), voluntary employees’ beneficiary associations (VEBA) and self-employed individuals who qualify for the self-employed health insurance deduction pursuant to Code Sec. 162(l).
Employees who have children who will not have reached age 27 by the end of the tax year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. The child does not have to be the taxpayer’s dependent for tax purposes pursuant to Code Sec. 152(a).
The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.
Follow this link for additional Information on other health care provisions.