Client Alert
from
The McCart 
Group
 
April 30, 2010
IRS Issues Notice on Tax Treatment of Older Dependent Child Coverage
The IRS has released Notice 2010-38 confirming that the change in tax treatment for older children contained in the health reform legislation is effective March 30th, 2010. 

Health coverage for any child who does not turn 27 by the end of the tax year is no longer taxable to the employee. 

Some employers already offer plans which extend coverage to children who do not qualify as a dependent under existing tax law due to state laws or plan design. 

Existing tax laws (prior to 3/30/2010) required employers to treat the value of the child's coverage as taxable income to the employee. 

With this change, coverage provided in this situation should be treated as taxable income to the employee only through 3/29/2010.

Beginning 3/30/2010 the child's coverage is no longer taxable to the employee.  Employer should adjust their payroll practices to reflect this change immediately.
The IRS notice also states that cafeteria plans have the option to treat this change as a status change allowing employees to enroll affected children retroactively back to 3/30/2010. 

Cafeteria plan documents must be amended to reflect this change no later than 12/31/2010.  The IRS announcement and Notice 2101-38 can be found at http://www.irs.gov/newsroom/article/0,,id=222193,00.html.
 

 
Please contact your McCart Group representative with any questions you may have.
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