Can Employer Provided Health Insurance for an Adult Child Be Considered Imputed Income?
Full Question:
Answer:
As long as your adult child is less than 27 years of age, is not married, and if employed, is not eligible for health insurance through his/her current employer where the premium contribution is less than the additional premium amount you are required to pay to insure your adult child on your policy. However, the fair market value of the benefit for that insured dependent may be considered imputed taxable income to you if you receive any employer contribution towards the premium, including the use of sick leave credits.
For a child to be considered a tax dependent under the Internal Revenue Code (IRC), the child must meet the IRC’s requirements of a “qualifying child” or “qualifying relative.” Please see IRS Publication 501 (note this is still the 2008 version) or the IRS Form 1040 Instructions, pages 17-20, for more information. For example, the IRC requires that a qualifying child meet five tests:
- The child must be your son, daughter or stepchild
- The child must be
(a) under age 19 at the end of the year,
(b) under age 24 at the end of the year and a full-time student, or
(c) any age if permanently and totally disabled.
- The child must have lived with you for more than half of the year
- The child must not have provided more than half of his/her own support for the year
- If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.
The IRC requires that a qualifying relative meet four tests:
- The person cannot be your qualifying child or the qualifying child of any other taxpayer.
- The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you, or (b) must live with you all year as a member of your household (and your relationship must not violate local law).
- The person’s gross income for the year must be less than $3,650. (However, under Internal Revenue Service Notice 2004-79, this does not apply for purposes of determining tax dependent status for your child when you are insuring your child on your health insurance policy. Your child only needs to meet the remaining three tests to be a qualifying relative for health insurance purposes.)
- You must provide more than half of the person’s total support for the year.
Please see the information at the following links:
http://etf.wi.gov/publications/dependent_mandate_2010.pdf
http://www.irs.gov/taxtopics/tc401.html
For further inquiry, please see the contact information at the following link:
http://www.irs.gov/advocate/article/0,,id=147482,00.html
