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 (IRB ) Corporate distributions of property; distribution by subsidiary Notice (IRB ) Notice withdrawn; IRS to continue.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 Massachusetts Health Care Reform Act at chapter 58 of the Acts ofas amended, changed chapters 32A,A, B and G of the General Laws to require a broadening of dependent coverage offered by health insurance carriers. The Legislature made several technical corrections to the health care reform law in the recent “Act further Regulating Health Care Access,” St. Collectively, the amendments require 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 after the end of the calendar year in which such persons last qualified as dependents under 26 U.
A noncash fringe benefit that is included in gross income is sometimes referred to as “imputed income. 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. 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
The recent legislation provides an exemption for imputed income for Massachusetts personal income tax purposes where health care coverage is required by Massachusetts law. As a result, Massachusetts will not follow federal law in ids area of imputed income resulting from employer-provided health care fringe ors.
Section 61 a 1 of the Code states that, except as otherwise provided, gross income includes compensation for services, including fees, commissions, fringe benefits, and similar items.
A fringe benefit is any property or service that an employee receives in lieu of or in addition to regular taxable wages. The extent to which a particular fringe benefit is excluded from gross income depends on the Code provisions that apply to the benefit. Employer-provided health insurance coverage is a fringe benefit. Section a of the Code provides that gross income of an employee does not include employer-provided coverage under an accident or health plan.
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 In Notice, C.
Except in the case of amounts attributable to and not in excess of deductions allowed under section relating to medical, etc. Any child to whom section e applies shall be treated as a dependent of both parents for purposes of this subsection. Accordingly, under Internal Revenue Service Noticean employee may exclude from gross income the value of employer-provided health insurance coverage for a child who, while not a “qualifying child,” meets the definition of a “qualifying relative” determined without regard to the child’s gross income.
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. 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.
Pending specific guidance from the Internal Revenue Service, an employer must determine the amount of imputed income attributable to the health insurance coverage of an employee’s nondependent child under valuation principles articulated in federal income tax law.
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.
Massachusetts gross income is federal gross income, as defined under the Code, with certain modifications. Generally, with respect to the personal income tax, Massachusetts adopts the Code as amended and in effect on January 1, However, pursuant to G.
The exclusion from Massachusetts gross income under G. 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.
Recent legislation provides for the exclusion 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.
The purpose of this fact sheet is to provide general guidance on the federal and Massachusetts treatment of employer-provided health insurance coverage for an employee’s child.
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 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 term “imputed income” is sometimes used to refer to the value of a noncash fringe benefit an employee receives where federal law requires the value of the fringe benefit to be included in the employee’s gross 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 However, for federal income tax purposes, the value of health insurance benefits for a child of an employee is treated as imputed income in cases where the child does not qualify as a dependent under IRC section This can happen, for example, when the child is over age 24 or is emancipated.
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. 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.
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.
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.
For an affected employee, the Massachusetts gross income for the year, as reflected in his or her W-2, will be lower than federal gross income. 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? Under federal tax law, employer contributions for health insurance are excluded from an employee’s gross income.
However, the exclusion is limited to contributions made for coverage of the employee, the employee’s spouse, and the employee’s dependents. In general, for a child to be considered a dependent under the Internal Revenue Code, the child must meet the requirements of a “qualifying child” or a “qualifying relative” as described below. Pursuant to IRS Noticethe definition of “dependent” for purposes of the exclusion from 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.
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
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.
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. When does employer-provided health insurance coverage for an employee’s child result in imputed income to the employee? In the context of employer-provided health insurance benefits, the following examples illustrate when imputed income occurs and when it does not.
A child of divorced parents, age 25, is a full-time student who lives with his mother. The father is a Massachusetts resident. The child is included in the father’s employer-provided health insurance coverage. The child is supported by both his parents.
Under the terms of the divorce agreement, the mother may claim the federal dependency exemption for him. As a result of the expanded coverage required by the Massachusetts health care reform law, notoce 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.
This TIR focuses on the instances where a child of a taxpayer who is not a “qualifying child” may be a “qualifying relative. If you need to report child abuse, any other kind of abuse, or need urgent assistance, please click here. Massachusetts Department of Revenue 2004–79 Sources: Notics table of contents. Massachusetts General Laws show more show less.
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Massachusetts Department of Revenue.