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Kids, FSAs, businesses and health care

By Kay Bell · Bankrate.com
Thursday, April 29, 2010
Posted: 2 pm ET

The health care reform law, officially titled the Patient Protection and Affordable Care Act, has been in effect for just over a month and we're starting to see a few of its effects.

This week, the IRS gave its OK for some expanded insurance coverage to start a bit early.

What's sure to be a popular provision among some parents is the option that allows them to add their dependent children age 26 or younger to their insurance coverage. That was set to take effect in late September. Some insurers, however, decided to let policy holders add their kids early and the IRS issued a notice clarifying the ramifications of the sooner-than-expected change.

In Notice 2010-38, the IRS assures parents, the insurance companies that issue their policies and the employers through which they get the coverage via cafeteria plans that the expanded health care will continue to be a tax-free workplace benefit.

The IRS also decided that changes in policies for parents and their now-insured older children is retroactively effective to March 30.

The involvement of the IRS was sparked by several insurers who decided on their own to open up the policy door so that recently graduated but unemployed, and thus uninsured, young adults could get some at least stop-gap coverage.

Flexible spending account changes, too: The IRS notice also dealt with medical flexible spending accounts, or FSAs.

These plans allow workers to set aside a portion of their income to pay for co-pays, deductibles and treatments not covered by their insurance.  The IRS gets a say here because the FSA owner's money goes into the account before taxes are withheld.

FSA changes usually can't be made until a workplace's benefits open season or when there's a major life changing event. But, says the IRS, if a company wants to let FSA owners make adjustments to their accounts now that they have their grown kids on their policies, that's fine with the feds.

The key here is that it's your employer's option to let you make FSA changes now. Many probably will, especially if most of their FSA-owning employees ask. So check with your human resources office about this possibility.

But even if you can't bump up your FSA contributions now that you have more people on your policy,  Bob D. Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters, says you still can use FSA funds for your now-covered child's medical expenses.

Keeping businesses in health care loop: In addition to the adult child insurance ruling, the IRS also has been busy getting the word out to small businesses that they  might be eligible to claim the recently enacted small business health care tax credit.

The IRS started sending out last week almost 4.5 million postcards to small companies reminding them that starting this tax year, they might be eligible for credit of up to 35 percent of the premiums they pay for worker coverage.

That maximum credit amount goes to smaller employers, those with 10 or fewer full-time equivalent  employees, and who pay annual average wages of $25,000 or less.

The other health care law change on the immediate horizon is the 10 percent excise tax on tanning bed services. That charge kicks in on July 1, so if you're thinking of artificial bronzing, plan accordingly. I don't think we'll be seeing a major public education push or reminders from Uncle Sam on the tanning tax.

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