By Reinhart Law, Gail Olsen, JD
Effective January 1, 2010, Wisconsin insured health plans must cover an adult child who is under age 27, unmarried and not eligible for coverage under another group health plan that is offered by the child’s employer unless the child’s premium contribution is greater than the premium amount for his or her coverage as a dependent under your plan. In addition, under the Wisconsin mandate, eligibility may continue past age 27 for an adult child who attends school full-time after returning from active military if he or she was under age 27 and a full-time student at the time he or she was called to active duty and meets the other requirements noted above.
Employees are not taxed on the value of health coverage for dependent children who meet the requirements for a qualifying child and qualifying relative as applied to health plans under section 152, as modified by section 105(b), of the Tax Code. If a dependent child does not meet these requirements, then the employer must impute income to the employee for the fair market value of the employer-paid coverage (including any amounts paid pre-tax through a cafeteria plan). Some employers may already have been imputing income for adult child coverage for 2010.
Changes in the Definition of Federal Tax Dependent
A provision in the federal health care reform law (as amended by the Reconciliation Act) extends the exclusion from gross income under section 105(b) of the Tax Code for the value of employer-provided health coverage to any adult child who has not turned age 27 as of the end of the taxable year. This provision is likely to expand coverage for adult children, because employees will no longer be taxable on health coverage provided for an adult child under age 27 who does not otherwise meet the requirements of a dependent under section 152 of the Tax Code as either a qualifying child or a qualifying relative due to the requirements for age, full-time student status, residency or support. This provision becomes effective on the date of enactment, which is March 30, 2010. We have received informal confirmation from an IRS source in Washington, D.C. that income should be imputed under the old rules for federal tax purposes from January 1, 2010 through March 30, 2010. Thereafter, the new rules will apply for federal tax purposes.
To put it in practical terms, for the remainder of 2010 after March 30, the employer should continue to impute income for an adult child who turns 27 during the tax year and who does not meet the requirements of a “qualifying relative.” under Code Section 152 Likewise, imputed income would continue to apply to adult children who are over age 27 when they return from military service and who do not meet the requirements of a “qualifying relative.”
Wisconsin Tax Implications
Because Wisconsin law is currently more expansive than federal law with regard to the coverage of adult children, employers will be required to assess whether imputed income for Wisconsin tax purposes applies in 2010 and future tax years. Wisconsin income tax laws are generally one year behind the current version of the federal tax code. A source at the Wisconsin Department of Revenue has confirmed that Wisconsin is still on the “old” rules for 2010, and that the legislature is not expected to propose any conformity bills until early 2011. Therefore, employers should continue to impute income for Wisconsin tax purposes under the pre-March 30, 2010 rules.
New Federal Mandated Coverage
The new federal health care reform law also contains a mandate for the coverage of adult children, married or unmarried, until the child turns 26 years of age if the child is not eligible for other employer coverage. This provision is generally effective for plan yeas beginning on or after six months after March 23, 2010 (i.e., January 1, 2011 for calendar year plans). In plan years beginning in 2014, the adult child must be covered regardless of other employer coverage. The Department of Health and Human Services is to issue regulations defining which children are considered “dependents” for these purposes.
For questions, please contact:
Gail M. Olsen
Reinhart Boerner Van Deuren s.c.
1000 North Water Street, Suite 1700 | Milwaukee, WI 53202
Office: 414-298-8353 | Cell: 414-840-8117 | Fax: 414-298-8097
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