Instructions For Form Tir 07-16: Personal Income Tax Treatment Of Employer-Provided Health Insurance Coverage For An Employee'S Child (Page 3 of 6) in pdf

by Massachusetts law. The exclusion from Massachusetts gross income under G.L. c. 62, § 2(a)(2)

(Q) also applies to employees with coverage under self-funded or self-insured employer-provided

health plans adopting dependent health coverage otherwise required for insured plans under the

applicable Massachusetts insurance statutes.

/s/ Henry Dormitzer

Henry Dormitzer

Commissioner of Revenue

HD:MTF:adh

248233

TIR 07-16

December 21, 2007

Appendix to TIR 07-16

Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an

Employee’s Child under the Massachusetts Health Care Reform Law

As of January 1, 2008, 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.S.C. 106,

whichever occurs

first.”[4]

The reference to 26 U.S.C. 106 is section 106 of the Internal Revenue

Code.

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. See G.L. c. 62, § 2(a)(2)

(Q).

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

TIR 07-16, whether 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 106. An employer or an employee seeking a case-specific

determination on imputed income for federal income tax purposes must contact the Internal Revenue

Service.

A. What is imputed income?

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 benefit), the 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 106. 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 106. 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

Instructions For Form Tir 07-16: Personal Income Tax Treatment Of Employer-Provided Health Insurance Coverage For An Employee'S Child Page 3

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