The IRS announced that under the Affordable Care Act, health coverage provided for an employee’s children under 27 years old is now generally tax-free to the employee, effective March 30, 2010. These changes allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010 and forward if the children are already covered under the employer’s plan or are added to the employer’s plan at any time.

This replaces the lower age limits that applied under previous law, as well as the requirement that a child generally qualifies as a dependent for tax purposes.

Click here to read IRS Notice 2010-38.