Health Care Benefits: How to Determine the Tax Treatment for Children Under 27

The Patient Protection and Affordable Care Act signed March 23, 2010 and the Education Reconciliation Act signed on March 20 extended health care benefits to children under the age of 27.  The IRS states these benefits are to be pre-tax for employer-provided health insurance and reimbursements for medical care. The question now becomes how this health benefit will be treated for taxation by the each state.

The following states will adopt the same changes as the federal government:

  • Alabama
  • Colorado
  • Connecticut
  • Delaware
  • District of Columbia
  • Illinois
  • Kansas
  • Louisiana
  • Maryland
  • Michigan
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • New York
  • North Carolina
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Rhode Island
  • Utah
  • Vermont

Currently the following states do not conform to the federal tax treatment of health care benefits for children under 27:

  • Arizona
  • Arkansas
  • California
  • Georgia
  • Hawaii
  • Idaho
  • Indiana
  • Iowa
  • Kentucky
  • Main
  • Massachusetts
  • Minnesota
  • Oregon
  • South Carolina
  • Virginia
  • West Virginia
  • Wisconsin

At this time Mississippi and New Jersey have made no reference to how this new benefit will be treated; additional rulings may be forthcoming.  Other states still have pending legislation and continue to watch for additional information.

Finally, as a reminder, the Federal law takes precedence over the states on extending the Health Care coverage, unless the state offers the coverage to dependents after they reach age 26. 

Sherry Dwyer, CPP
Software Support Manager

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