The Internal Revenue Code of 1986 as amended (IRC) provides in §106 for an exclusion from income for employer-provided health insurance that covers the employee, the employee’s spouse, the employee’s children, and the employee’s qualifying relatives. Prop. Treas. Reg. § 1.125-1(h), 22 Fed. Reg. 43937 (August 6, 2007) clarified that coverage for a former spouse who is not a dependent is not excludible from an employee’s income. Therefore, the fair market value of coverage for a former spouse is includible in an employee’s income for federal income tax purposes.
In the recently released, Working Draft Directive 09-XX, Personal Income Tax Treatment of Employer-Provided Health Insurance Coverage for an Employee’s Former Spouse, the Massachusetts Department of Revenue concludes that any income required to be included in federal gross income for coverage required under Massachusetts General Laws (MGL) shall be excluded from Massachusetts gross income. Coverage may be required for former spouses under the following laws, among others: MGL c. 176G § 5A, MGL c. 32A § 11A, MGL c. 175 § 110, MGL c. 176A § 8F, and MGL c. 176B §6B. Contact Vision Payroll if you have any questions on this Working Draft Directive.