The Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010 include provisions that require health plans to extend coverage to children of employees up to age 26, regardless of whether the child is a dependent or a full-time student.
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On April 27, 2010, pursuant to the PPACA, the IRS issued Notice 2010-38 to provide guidance on the tax treatment of coverage to children under age 27 (as of the end of the taxable year). Section 1001 of the PPACA requires health care plans that provide dependent coverage to children to extend such coverage to any employee's child until the child reaches age 26. The IRS... explained that although plans must cover children up to age 26, "employers may exclude from the employee's income the value of any employer-provided health coverage for an employee's child for the entire taxable year the child turns 26 if the coverage continues until the end of the taxable year." 26 CFR 54.9815-2714T (Preamble).
IRC Section 105(b) (26 USCS 105) allows an employee to exclude from gross income employer-provided reimbursements made to the employee, either directly or indirectly, for medical care of the employee's dependent. The Health Care and Education Reconciliation Act of 2010, Section 1004(d), extended this exclusion to reimbursements made on behalf of a child who has not reached age 27 by the end of the employee's taxable year. In other words,... "if a child turns 26 in March, but stays on the plan past December 31st (the end of most people's taxable year), the health benefits up to December 31st can be excluded for tax purposes." 26 CFR 54.9815-2714T (Preamble). The employer may assume that the employee's taxable year is the calendar year, and... may rely on the employee's representation as to the child's age.
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The IRS, [Department of Labor] DOL, and the Department of Health and Human Services (HHS), issued Interim Final Rules for Group Health Plans and Health Insurance Issuers Relating to Dependent Coverage of Children to Age 26 under the PPACA on May 7, 2010.
In its interim regulation, 26 CFR 54.9815-2714T(a)(2), the IRS clarifies that for a calendar plan year, a child need only be covered until the day before the child turns 26.
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... IRS... transitional rules for children whose coverage ended prior to age 26 [require]... [t]he plan [t]o offer the child a written notice of the opportunity to enroll in the plan no later than the first day of the first plan year beginning on or after September 23, 2010. Coverage must begin no later than the first day of the first plan year beginning or after September 30, 2010. The child must be "offered all the benefit packages available to similarly situated individuals who did not lose coverage by reason of cessation of dependent status."
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