The Internal Revenue Service (IRS) has issued guidance on the tax treatment of adult dependent health care coverage under an employer-sponsored health plan. This guidance confirms that the employer subsidy for adult children is treated with the same tax favorability as traditional health benefits. Notice 2010-38 explains that health coverage costs for an employee's child under age 27 are excluded from gross income, and are thus not considered wages for FICA or FUTA purposes and are also exempt from income tax withholding. Retroactively effective March 30, 2010, employees with cafeteria plans are allowed to immediately begin making pre-tax contributions to pay for this new, expanded benefit. The new health reform law enacted in March enables adult children to be covered by their parents' health insurance plan until they reach age 26, even if they are married. For these purposes, eligible children include a son, daughter, stepchild, adopted child or eligible foster child. In addition, children do not have to qualify as a dependent for tax purposes to take advantage of this new health care provision.
Click here to read the IRS press release.
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