The Internal Revenue Service has issued new rules to allow employers with cafeteria plans to immediately permit their employees to make tax-free contributions if they enroll their eligible dependents up to age 26 on their health insurance plans.
Doug Shulman
The federal health care reform legislation, passed March 30, necessitated the immediate changes, according to the IRS.
“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” IRS Commissioner Doug Shulman said in a statement. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”
Under the changes, employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– can permit employees to begin making pre-tax contributions to pay for this expanded benefit.
The IRS issued Notice 2010-38 to explain the changes and provide additional guidance to employers, employees, health plan insurers and other taxpayers.
This expanded health care tax benefit applies to various workplace and retiree health plans, as well as to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.
Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 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. This new age standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.
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.
IRS tweaks its cafeteria plan rules to satisfy health reform via IFAwebnews.com .
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