Thursday, November 12, 2009

Hooray for the Tax Code!

I know you might not believe this, but sometimes the Tax Code (or IRC as we like to call it around here) is our friend. Take for instance, Code Sections 105 and 106. These little gems provide that employees are not taxed on (that is, they may “exclude” from gross income) the value of employer-provided health coverage under an accident or health plan. In addition, any reimbursements under an accident or health plan for medical care expenses for employees, their spouses, and their dependents (as defined in Code Section 152) generally are excluded from gross income.

Yes, it’s definitely special, but not for everyone. Cheers for the Tax Code won’t be heard when a person who has employer-provided coverage isn’t the employee’s spouse or doesn’t meet the definition of dependent.

Code Section 152 defines a dependent as a qualifying child or qualifying relative. There are a bunch of other rules that explain what those terms mean, but I won’t go into them here. Suffice it to say that some folks, such as domestic partners, don’t usually qualify as dependents. And, thus, they can’t get the special tax treatment (in other words, an employee currently pays tax on the fair market value of the cost of coverage for the employee’s domestic partner).

House bill might herald more hoorays. The House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962), would amend Code Sections 105 and 106 to extend the general exclusion for employer-provided health coverage to “eligible beneficiaries.” An eligible beneficiary is defined as any individual who is eligible to receive benefits or coverage under an accident or health plan. The provision does not place a limit on the number of eligible beneficiaries an individual is able to claim for purposes of the exclusion.


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