Today, Congressman Joe Baca (D-Rialto) announced that the Internal Revenue Service has issued an announcement that employer-provided health coverage for adult children under the age of 27 is now tax-free for Californians. These changes immediately allow employers with cafeteria plans -- plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits -- to permit employees to begin making pre-tax contributions to pay for this expanded benefit.
"Allowing young adults to stay on their parents' insurance plans until the age of 26 was one of the most important provisions Congress fought to include in the recent health reform legislation," said Rep. Baca. "More than 65 health insurance companies have already agreed to implement these provisions earlier then originally mandated--and by making employer-provided coverage for adult children tax-free, the Obama administration is taking further steps to expand health coverage for young Americans."
A key provision of health care reform requires health plans to allow young adults under the age of 26 to remain on their parents' insurance policy, at the parents' choice, effective in September 2010. Now, in the last two weeks, more than 65 health insurance companies have agreed to implement this key provision early. This early implementation will avoid gaps in coverage for many graduating college seniors and certain other young adults and save on insurance company administrative costs of dis-enrolling and re-enrolling them between May 2010 and September 23, 2010.
The recent IRS announcement states that effective March 30, 2010, workplace and retiree health insurance plans will allow parents to add their adult children under age 27 to their health coverage on a tax-free basis.
"This forward-thinking tax change gives employers a unique opportunity to offer worthwhile benefits to all their employees," concluded Rep. Baca. "This change will make it easier for Inland businesses and employers to quickly extend health coverage on a tax-favored basis to older children of their employees."
Thanks to the recently enacted health care reform legislation, beginning in September 2010, it will be mandatory for health plans to allow adult children to remain on their parents' policy up until age 26. The IRS's newly announced tax change will give employers and employees a voluntary option to have adult children remain on parents' insurance policies on a tax-free basis up to age 27.