On Monday, the IRS, along with the Department of Labor and Department of Health and Human Services, issued interim final regulations for group health plans and health insurers relating to dependent coverage for children under the age of 26 (T.D. 9482). The regulations complement guidance issued by the IRS on April 27 on the tax treatment of health coverage for children who have not yet turned 27 (see “IRS Provides Guidance on Health Coverage for Adult Dependents, Addresses Discrepancies in Law”).
The Patient Protection and Affordable Care Act (P.L. 111-148) requires group health plans and health insurers that provide dependent care coverage to continue to make coverage available for any adult child of a plan participant up to age 26. It also extended the general exclusion from gross income for reimbursements for medical care under an employer-provided accident or health plan (under Sec. 105(b)) to any employee’s child who has not yet turned 27 by the end of the tax year. (The IRS in Notice 2010-38 indicated that it will extend this treatment to include coverage excluded under Sec. 106, too.)
The interim final regulations implement the coverage extension requirement and also invite comments. They clarify that the expansion of coverage required by the act cannot be conditioned on whether the child is a tax dependent or student, or on whether the child lives with or receives financial support from the parent. Under the regulations, a health plan or issuer may only define “dependent” based on a parent/child relationship.
The regulations further explain the apparent discrepancy between the “up to age 26” requirement for health plans and the “not yet turned 27” requirement for the exclusion from gross income. While health care plans are generally required to cover enrollees’ children up to age 26, some employers may decide to continue coverage past the child’s 26th birthday. In such a case, the value of the employer-provided health coverage will be excluded from the employee’s income for the entire tax year in which the child turns 26 (that is, through Dec. 31 for calendar-year taxpayers).
The interim final regulations provide transitional relief for a child whose coverage ended, or who was denied coverage (or was not eligible for coverage) under a group health plan or health insurance coverage because, under the terms of the plan or coverage, the availability of dependent coverage of children ended before the attainment of age 26. The interim final regulations require a plan or issuer to give such a child an opportunity to enroll for at least 30 days, starting not later than the first day of the plan year beginning on or after September 23, 2010.
The interim final regulations will take effect 60 days after publication in the Federal Register.