This week’s question comes from Kim, an HR director. We have employees who maintain coverage on their health insurance policy for children, including some children who are not dependents. We have always included the cost of this coverage in our employees’ income. How does health care reform affect the taxation of children’s health insurance coverage? Answer: Generally, the Affordable Care Act allows the cost of coverage for children who are under age twenty-seven at the end of the year to be tax-free to employees. Additionally, employees may make pre-tax contributions to cafeteria or §125 plans for children who will be under age twenty-seven at the end of the tax year. These benefits are available even if the child qualifies as a dependent under the tax law. The Internal Revenue Service (IRS) recently issued Notice 2010-38, Tax Treatment of Health Care Benefits Provided With Respect to Children Under Age 27, to explain these changes and provide further guidance to employers, employees, health insurers and other interested taxpayers. Contact Vision Payroll if you have further questions on Notice 2010-38.