Some states require continued health care coverage for adult children under their parents’ health insurance policies. Colorado, Maryland, Massachusetts, New Jersey, and Utah are among the states that recently passed health insurance continuation laws.
The issue this raises for employers is that these laws conflict with Internal Revenue Code rules. The Internal Revenue Code states that an employer must include in the gross income of an employee any part of a health plan premium payment paid by the employer and attributable to someone who is not an employee, a spouse or a dependent. The problem is that the mandatory state laws require continuation coverage for a category of children who no longer qualify as a dependent under the Code. The dependent must be a qualified child or qualified relative as defined in code 152. If an employer wants to continue to pay all or part of the premium for employee’s dependents under the state-extended definition, the tax-free benefits that were previously available for the parents pursuant to federal law my no longer apply.
Also if an employer offers health insurance coverage to their employees through a cafeteria plan arrangement, they will find that premium payments are not excludable from the employee’s gross income (as with domestic partners who may not be dependents), as they would not constitute the type of qualified benefit that can be offered under a cafeteria plan.
For example, New Jersey law permits eligible dependents to be covered until their 30th birthday. To qualify as a dependent under New Jersey law, an individual must be (1) under age 30; (2) unmarried; (3) without dependents of their own; (4) a resident of the State of New Jersey or enrolled as a full time student and (5) not covered under any other group or individual health benefits plan or entitled to Social Security benefits.
In contrast, the IRS and the Code define dependent as a person other than the taxpayer or taxpayer’s spouse who is a qualifying child or qualifying relative. A qualifying child age requirements are “has not attained the age of 19 as of the close of the calendar year, or is a student who has not attained the age of 24."
Non-152 dependent (a dependent over the age of 24 who is not a qualifying relative) premium payment is not prohibited, but it is not a qualified benefit that can be offered under a cafeteria plan arrangement. Therefore, while employers are permitted to pay part or all of the premiums for non-152 dependents, only coverage for an employee, spouse and qualifying child, or qualifying relative will be eligible for the exclusion from gross income of the employee (i.e., employees can not pay on a pre-tax basis for employer provided health premiums for non-152 dependents and the employer paid portion of such premiums is also treated as income to the employee.)
