Health Care for Young Adult under 27

Tax-Free Employer-Provided Health Coverage Now Available for Young Adults under Age 27

As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.

The Internal Revenue Service announced that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.


“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” IRS Commissioner Doug Shulman said. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”
This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes. This means the son or daughter does not have to be your dependent for tax purposes.

The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.

Dependent care credit.

If you pay child-care expenses so that you and your spouse can work, look into claiming this credit. Your child must be under the age of 13 to qualify for this credit. The credit is also available for the expenses of caring for a disabled spouse or other disabled adult dependent while you work.The minimum credit rate is 20%, on the first $3,000 of expenses (6,000 for the care of two or more qualifying dependents).

The expenses which qualify also include the costs of summer day camp. However, the cost of overnight camp does not qualify.

Before claiming this credit please consult with your tax advisor.

Haiti Relief

Their has been much talk about Haiti and what we as Americans can do to help.

Congress has acted quickly and passed a new law which should help many Americans contribute to the relief effort and get a tax deduction.

The new law was enacted after the 2009 tax forms, instructions, and publications had already been printed. When preparing your 2009 tax return, you may complete the forms as if these contributions were made on December 31, 2009, instead of in 2010. To deduct your charitable contributions, you must itemize deductions on Schedule A (Form 1040).

These contribution must have been made between January 11,2010 and March 1, 2010. Contributions can be made with cash, check, money orders, credit cards, debit cards, or via cell phone. The contributions must be made to a qualified organization and meet all other requirements for charitable contribution deductions.

Tax Planning for 2010

That's right Tax Planning for 2010 starts now. Many of the best planning ideas should be done in the first month of the new year. The following is just a partial list of ideas that should be done ASAP.

Make your Retirement contributions as early as possible (earnings grow tax deferred).

If you plan on making annual gifts(this year you can gift 13,000 to each individual W/O gift tax concern) they should be done early in the year and not in December.

If you own a business you should think about hiring your children to work part time for your business. Their tax rate is probably lower than the parent's.

Now is the time to review your estate plan and make any changes that would be necessary due to family changes or business changes.

Before doing any of these ideas you should consult your tax advisor to maximize the tax benefits of these tips.

2010 IRS Mileage Rates

Last week the IRS published the rates for what the IRS will allow as reimbursement for using your personal vehicle for business. For this year (2009) it was 55 cents per mile. For 2010 the rate was changed to 50 cents per mile.

This optional rate per mile can be used in place of keeping track of actual expenses. When claiming the cents per mile the employee or business owner needs to keep a travel log which contain the place you traveled to and business purpose plus the number of miles which were actually driven.

If you have any questions please contact your tax consultant for further guidance.

Cancellation of Debt

Generally, if a debt for which you are personally liable is canceled or forgiven, you must include the canceled amount in your income. This is commonly referred to as COD income. COD income can be from credit cards, mortgages, consumer loans like cars, LOC, ect. You should receive a Form 1099-C in early 2010 showing the amount which was forgiven or canceled during 2009.

There are several exceptions, exclusions, or reclassification that may result in part or all of your COD income being nontaxable. Two examples of an exception would be Qualified Principal Residence Indebtedness or if you are insolvent. Before claiming any exceptions please consult your tax advisor.

Deduction for Sale Tax on New Car Purchase

The 2009 Act allows an income tax deduction for state and local sales and excise taxes paid on the purchase of a new qualifed vehicle on or after the 2009 Act's enactment date and before 2010. This deduction is allowed even if you do not itemize. Put it on page one of the 1040 tax return and it reduces your adjusted gross income. For purposes of the deduction a "qualified motor vehicle" is generally defined as a new passenger automobile, light truck, motorcycle, or certain motor homes. The deduction is available only for taxes paid on up to $49,500 of the cost of a qualified vehicle.

If you have any questions regarding this deduction please call us for a more detail discuss of this law behind this benefit.