Excerpt: This notice provides guidance regarding the effect of the Working Families Tax Relief Act of (WFTRA), Pub. L. No. , On November 17, , the Internal Revenue Service (“IRS”) published Notice (“Notice”), clarifying some confusion over the definition. (IRB ) Corporate distributions of property; distribution by subsidiary Notice (IRB ) Notice withdrawn; IRS to continue.
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The purpose of this fact sheet is to provide general guidance on the federal and Massachusetts treatment of 2040-79 health insurance coverage for an employee’s child.
The employee’s federal gross income for the year, as reflected in his or her W-2, will be higher and this higher amount will be subject to taxation and withholding. Pursuant to IRS Noticethe definition of “dependent” for purposes of the exclusion nootice gross income for employer-provided health insurance benefits is broader than the definition for purposes of claiming the dependency exemption for the child on the parent’s federal income tax return.
When does an employee’s child meet the definition of dependent for purposes of employer-provided health insurance coverage so that the entire value of the coverage is excluded from gross income?
If a child does not meet the definition of dependent for these purposes, the value of the health coverage for this individual will be imputed as income to the employee for federal income tax purposes.
As a result of extended employer-provided health insurance coverage for children “under 26 years of age or for 2 years after the end of the calendar year in which such persons last qualified as dependents under 26 U. The gross income of an employee does not include contributions which his employer makes to an accident or health plan for compensation through insurance or otherwise to the employee for personal injuries or sickness incurred by him, his spouse, or his dependents, as defined in section As explained in TIRwhether a child of an employee is a dependent for purposes of the federal exclusion from gross income of employer-provided health insurance coverage is a question of federal income tax law pursuant to Internal Revenue Code section Generally, with respect to the personal income tax, Massachusetts adopts the Code as amended and in effect on January 1, If an employee participates in an employer-provided health insurance plan, any amount which, but for this section, would be included in gross income of the employee by reason of coverage under the plan of any person other than the employee, to the extent such coverage is mandated by law.
Although generally Massachusetts follows federal law in the area of noncash fringe benefits, in the case of imputed income with respect to employer-provided health insurance, the Legislature has chosen to depart from the federal treatment.
This can happen, for example, when the child is over age 24 or is emancipated. A noncash fringe benefit that is included in gross income is sometimes referred to as “imputed income.
In the area of employer-provided health insurance coverage which is a fringe benefitthe value of health insurance benefits for a child of an employee is excluded from gross income where the child is a dependent under the rules of IRC section In the context of employer-provided health insurance benefits, the following examples illustrate when imputed income occurs and when it does not.
Employer-provided health insurance coverage is a fringe benefit. The Legislature made several technical corrections to the health care reform law in the recent “Act further Regulating Health Care Access,” St. Section a of the Code provides that gross income of an employee does not include employer-provided coverage under an accident or health plan. If a taxpayer’s child does not meet the requirements of a dependent as a “qualifying child,” the child may still meet the requirements of a dependent as a “qualifying relative.
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Where an employee is charged with federal imputed income for employer-provided health coverage, the employee is not charged with the imputed income for Massachusetts purposes where the health care coverage is required by state law. Please do not include personal or contact information. Under iirs terms of the divorce agreement, the mother may claim the federal dependency exemption for him. The child is included in the father’s employer-provided health insurance coverage.
Feedback Did you find what you were looking for on this webpage? As of January 1,the Massachusetts Health Care Reform Act expands employer-provided health insurance coverage to include an employee’s child “under 26 years of age or for 2 years after the end of the calendar year in which such persons last qualified as dependents under 26 U. A child of divorced parents, age 25, is a full-time student who lives with his mother. The recent legislation provides an exemption for imputed income for Massachusetts personal income tax purposes where health care coverage is required by Massachusetts law.
Except in the case of amounts attributable to and not in excess of deductions allowed under section relating to medical, etc. We use your feedback to help us improve this site but we are not able to respond directly. For purposes of the exclusion from gross income for employer-provided health insurance, any child of divorced parents who meets the expanded definition of dependent in connection with one parent is treated as a dependent of both parents.
Massachusetts Department of Revenue. As a result of the expanded coverage required by the Massachusetts health care reform law, the child is included in the parent’s employer-provided health insurance coverage. Also, prior to the clarification in the technical corrections Act, the health care reform law required that on or after January 1,carriers issuing or renewing insured health benefit plans with coverage for dependents make coverage available for persons “under 26 years of age or for 2 years following loss of dependent status under the Internal Revenue Code, whichever occurs first.
A fringe benefit is any property or service that an employee receives in lieu of or in addition to regular taxable wages. For federal income tax purposes, an employee who opts for coverage for a nondependent child will be taxed on the fair market value of the child’s coverage to the extent that it exceeds any amount paid by the employee on an after-tax basis employee pre-tax contributions are considered to be employer contributions.
So a child may qualify as a dependent for purposes of the exclusion from gross income for employer-provided health insurance benefits whether or not the parent actually claims the dependency exemption for the child on the parent’s federal income tax return.
IRS Notice 2004-79 Clarifies WFTRA Confusion
If you need to report child abuse, any other kind of abuse, or need urgent assistance, please click here. An employer or an employee seeking a case-specific determination on imputed income for federal income tax purposes must contact the Internal Revenue Service.
The child is supported by both his parents. This TIR provides a summary of Internal Revenue Service Noticea federal notice that provides relief from imputed income in many instances where employer-provided health coverage includes an employee’s grown child.
Recent legislation provides for the notkce from Massachusetts gross income of any imputed income resulting from employer-provided health insurance of a person included in the employee’s family health insurance plan where the coverage is required by state law. Although this TIR provides general guidance, an employer or an employee seeking a case-specific determination on federal imputed income must contact the Internal Revenue Service.
IRS Notice Clarifies WFTRA Confusion – Benefits Counsel
This TIR focuses on the instances where a child of a taxpayer who is not a “qualifying child” may be a “qualifying relative. The extent to which a particular fringe benefit is excluded from gross income depends on 2004-79 Code provisions that apply to the benefit. Under federal tax law, employer contributions for health insurance are excluded from an employee’s gross income.