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Tax Treatment of Health and Dental Insurance

The Internal Revenue Service (IRS) has criteria to determine if a dependent qualifies as a “tax dependent.”  If a dependent is qualified under the IRS criteria, health and dental coverage provided by an employer is not subject to taxation.  Additionally, such coverage can be provided on a pretax basis and claims can be reimbursed through a health care flexible spending account.

The IRS rules for determining whether the dependent in question, qualifies as a tax dependent are complicated.  You should consult with your tax advisor to determine if the dependent qualifies as a tax dependent.

Resource

2020 Added Value Tax Table

2021 Added-Value Tax Matrix

Tax Consequences

The following table indicates whether there are tax consequences for enrolling your spouse, domestic partner and/or children.

Spouse & Dependents Enrolled in Health and/or Dental Insurance Tax Consequences
Your spouse No tax consequences
Dependent children under age 26 No tax consequences
Dependent children over age 26, unmarried and FT student Potential tax consequences
Domestic partner Potential tax consequences
Domestic partner's eligible children Tax consequences

Added Value Tax

For dependents that do not qualify as a tax dependent, the added value of providing them health and dental coverage is taxable to you. You are not taxed on the total health and dental family premiums but you will pay federal, state, and FICA taxes on the amount (the added value) that provides coverage for a dependent.

Each year, the State calculates the added value of providing dependent coverage for each health and dental insurance plan and for the number of non-qualified tax dependents.

Declaring Tax Dependent Status

Full-Time Student Over Age 26

When you enroll your unmarried full-time student over the age of 26 in your health and/or dental coverage, you complete a Certification of Full-Time Student Status form.You declare whether this student is or is not a qualified tax dependent as defined by the IRS.

If you declare that this student is a tax dependent, the added value of coverage will not be added to your gross pay and no additional taxes will be applied.  If you declare that this student is not a tax dependent, the added value of providing the coverage will be added to your gross pay and you will pay additional federal, state, and FICA taxes.  Your declaration of the tax status of this student remains in effect until you submit another certification form changing the tax status or you remove this student from your health and/or dental plan.

Domestic Partner

When you enroll your domestic partner in your health and/or dental coverage, you complete a Declaration of Domestic Partnership form.  On the affidavit, you declare whether your domestic partner is or is not a qualified tax dependent as defined by the IRS.

If you declare that your domestic partner is a tax dependent, the added value of coverage will not be added to your gross pay and no additional taxes will be applied.  If you declare that your domestic partner is not a tax dependent, the added value of providing the coverage will be added to your gross pay, and you will pay additional federal, state, and FICA taxes.  Your declaration of the tax status of your domestic partner remains in effect until you submit another affidavit changing the tax status of your domestic partner or the domestic partnership is dissolved.


The Department of Administrative Services – Human Resources Enterprise is providing this information about the State of Iowa’s benefits. The information on this web page is subject to change. Nothing herein shall be construed as a guarantee of benefits. This webpage is not a complete description of the State of Iowa’s benefit plans. Nothing on this web page supersedes or changes any of the terms and conditions of any plan documents, insurance policies, or other legal agreements. If the wording in this web page contradicts any plan documents, laws, regulations, administrative rules, insurance policies, or other legal agreements, the wording in the official documents and agreements will govern.


updated 12/16/2010