The Definition of Dependent – Ticking Time Bomb
Employer Self-Check
Ask yourself the following questions:
- Do you make medical, dental, and/or vision insurance coverage available to your employees and their families?
NOTE: For governmental employers, this includes these benefits when provided on self-insured basis.
- Do you cover employees who are Minnesota residents?
- Do you permit the employee to pay his/her share of the cost of these coverages pre-tax through salary reduction (i.e., through a flex plan)?
If you answered “yes,” important decisions may need to be made and implemented before January 1, 2008.
NOTE: This is not just a tax issue for the employee and the employee’s tax advisor. It is a tax issue for the employer as well. And, to the extent the employer permits pre-tax payment of any portion of the cost of coverage, it is a tax issue for all employees participating in the flex plan. |
To Do List
- Identify benefit coverages you sponsor that are subject to the new definition of dependent.
- Identify the renewal dates for each of the coverages. The new definition applies with respect to coverages begun or renewed on or after January 1, 2008. For calendar year coverages, this means January 1, 2008.
- Decide how to address tax consequences (impute income, pay after-tax, etc.).
- If you intend to impute income, you need to amend cafeteria plan prior to January 1, 2008.
- Decide how to identify and track employees with non-tax dependents on the coverages.
For Details & Assistance
- For additional details regarding the change in the definition of dependent, you can review our previous issued Client Alerts available on our website
- For private sector employers: http://www.hitesmanlaw.com/news_events/alert_070716.shtml
- For governmental employers: http://www.hitesmanlaw.com/news_events/alert_070827.shtml
- Consider using a Certificate of Dependent Status to identify and track non-tax dependents. A sample form is available on our website (http://www.hitesmanlaw.com/news_events/alert_070926.shtml)
- If an amendment to your cafeteria plan is needed, we have a “universal amendment” available that can be used with any existing document. Please contact us if you are interested.