Tax-Free Treatment for Adult Child’s Health Care Coverage

The Internal Revenue Service (IRS) recently issued Notice 2010-38, which provides important tax guidance on the proper treatment of health care benefits for children up to age 26. Effective March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (HCERA) extends tax-free health care reimbursements under Code section 105(b) to cover a “child” through the age of 26, regardless of whether or not he or she is a dependent under Code section 152(a). The Notice extends this same tax-free treatment to health care coverage under Code section 106, effective March 30, 2010, and this Notice can be relied upon pending issuance of updated regulations. Please see the attached memo for further information, including the impact on 2010 W-2 reporting.