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Feds clarify tax status of dependent coverage

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The new health care law mandated that adult children be eligible for coverage under their parents’ group health plan “up to age 26.” Did that mean until they turned 26, or are they covered during the entire year they’re 26? Employers were confused. The U.S. Department of Labor set the record straight. The answer: up until their 26th birthdays.

The confusion stems in part from another part of the health care reform law that made such coverage a tax-free benefit. Now the IRS has clarified that health coverage provided for employees’ children under age 27 is tax-free to the employee. That means employers with cafeteria plans may permit employees to immediately make pretax salary-reduction contributions to provide coverage for children under age 27. Employers have until the end of 2010 to amend plan language to incorporate the change.

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