IRS RELEASES GUIDANCE ON DEPENDENT COVERAGE

The IRS has issued the first of what will be many guidelines on the new health care reform law. The guidance confirms that an employer-sponsored health plan may provide coverage free from federal income tax to an employee’s children up to age 27.

This exclusion applies regardless of whether the child is married and regardless of whether the child is regarded as a “dependent” under the Internal Revenue Code. However, there are certain exclusions:

• The exclusion is effective for health coverage provided on or after March 30, 2010. Before March 30, coverage for the child will be excludable only if the child qualifies as a tax-code dependent.
• The exclusion ceases to apply in the year in which the child turns 27. This means if a child will turn 27 on Dec. 15, 2011, the exclusion applies to health coverage provided from March 30, 2010, through Dec. 31, 2010.

On Jan. 1, 2011, most calendar-year health plans will need to comply with the new health care reform mandate to extend coverage to adult children up to age 26. Although various questions still need to be answered about the new requirement to cover adult children, the change in tax rules does lead to an early and timely implementation of the tax law.