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Taxability of dependent coverage?
Benefits & Compensation
Taxability of dependent coverage?
Exchange ideas about health plans, retirement, work/life benefits, and employee assistance.
I manage four medical benefits plans in 3 states. They vary as to their definition of an eligible dependent. The IRS states in Publication 501 that an eligible dependent includes a child who is a full
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Forums » Topic Forums » Benefits & Compensation » Taxability of dependent coverage?
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Taxability of dependent coverage?
posted at 8/14/2008 1:38 AM EDT
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Posts: 23
First: 4/19/2001 Last: 8/14/2008 |
I manage four medical benefits plans in 3 states. They vary as to their definition of an eligible dependent. The IRS states in Publication 501 that an eligible dependent includes a child who is a full-time college student below the age of 24. One of my plans covers part-time students through the age of 25. Does this mean that the cost of the coverage for a PART-TIME student 25 year-old child is taxable to the employee (parent of the dependent child)?
Another example: IRS says for a dependent to be qualified, s/he must live with the taxpayer at least 1/2 of the year. What if the person's "dependent" has his or her own apartment and a full-time job and still goes to school. Would coverage for that child be a taxable benefit to the employee? Thanks for any light on this! |
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Taxability of dependent coverage?
posted at 8/18/2008 6:31 AM EDT
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Posts: 2442
First: 2/12/2000 Last: 9/14/2011 |
Does this mean that the cost of the coverage for a PART-TIME student 25 year-old child is taxable to the employee (parent of the dependent child)?
It is my understanding that: 1. This person is not eligible to participate. This means that 2. Premiums cannot be a pre tax deduction. 3. Benefits received are taxable to the employee. You should check with ERISA counsel on this. Not sure if this can be a part of your plan at all. |
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Taxability of dependent coverage?
posted at 8/24/2008 2:53 PM EDT
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Posts: 1047
First: 4/11/2002 Last: 9/14/2011 |
I'd be interested in checking out a copy of this Publication 501 that you read. I wasn't aware that the federal government dictated what age constituted a dependent child for medical and dental plans. Some states set minimum criteria as to what an insurance carrier must offer, however, employers can typically go above and beyond this minimum. |
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Taxability of dependent coverage?
posted at 9/17/2008 8:40 AM EDT
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Posts: 42
First: 7/13/2005 Last: 8/5/2011 |
The existing regs (1.106-1) state that, for purposes of the exclusion for employer-provided medical assistance, a dependent is defined under section 152. If they don't pass section 152 eligibility, the employer must tax the insurance premiums paid by the employer OR the employee will be liable for taxes on any benefits paid by the insurnace company.
"For employer-provided accident and health plans and medical reimbursement plans, the definition of dependents is the definition in section 105(b) as amended by the Working Families Tax Relief Act of 2004 (WFTRA), Public Law 108-311, section 207(9) (118 Stat. 1166) (that is, a dependent as defined in section 152, determined without regard to section 152(b)(1), (b)(2), or (d)(1)(B)). See Notice 2004-79, 2004-2 C.B. 898, see §601.601(d)(2)(ii)(b). |
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