IRS Notice 2010-38 explains the changes made by the Patient Protection and Affordable Care Act and provides further guidance to employers, employees, health insurers and other interested taxpayers. The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, 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. The extended coverage must be provided not later than plan years beginning on or after September 23, 2010.
The IRS explained that this expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.
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, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.