Dependent dependencies – when must a child fly the coop from their parents’ benefit plans?

“How long can my child stay on my (insert here) plan?” It’s a question we get asked all the time, and you won’t be surprised to know that the answer isn’t cut and dried. So, this article is to finally settle the question of how long you can keep your adult child on your group medical plan and how long you can run his/her expenses through your FSA or HSA.

The first question that must be answered is who is considered your child in the eyes of the federal government regulating such things. A “child” is an individual who is the employee’s son, daughter, stepson, or stepdaughter, and includes both a legally adopted individual of the employee and an individual lawfully placed with the employee for legal adoption by the employee. (Note that children of a same-sex spouse will also qualify as stepchildren.) The term “child” also includes an eligible foster child, defined as a child placed with the employee by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

With that definition established, we can now look at the rules of various types of benefit programs and how they relate to the parent’s ability to keep their child on said program. Again, it won’t surprise you to know they are all a bit different.

Group health plans:

Medical, dental and vision plans that offer dependent coverage generally must make coverage available for children until age 26, regardless of a child’s residency, financial dependence, student status, employment, or marital status.  The insurance carrier will terminate their coverage on the first of the month following their 26th birthday. 

Children with a developmental or physical disability that leaves them incapable of self-sustaining employment and chiefly dependent upon the subscriber for support and ongoing care are eligible to stay in the group health plan after age 26. Their condition must have occurred before they turned age 26.  When enrolling these dependents on your group medical plan, you must provide proof of the disability and proof the condition occurred before age 26.

But wait, there’s more. Some state insurance laws mandate coverage beyond age 26. Some plans voluntarily provide coverage past age 26 (most likely self-funded medical plans).  In either case, be prepared to prove the status of a qualifying child or a qualifying relative when determining the tax treatment of health coverage for an individual over the age of 26.  See Qualifying Dependent Rules to see the tests that must be passed in order to keep an adult dependent on your group medical plan after age 26.

Health Flexible Spending Account (FSA) plans: 

Your adult child’s medical, dental and/or vision expenses are eligible for reimbursement through your Health FSA until the end of the calendar year in which he/she turns age 26 if the FSA plan document allows it. For example, if your adult child turns age 26 in February, you can run his/her expenses through your Health FSA until December 31st (same taxable year). Period. Do you have to prove he/she lives with you? No. Do you have to claim him/her on your tax return as a dependent? No. Do you have to be substantially responsible for his/her financial wellbeing? No.

With regard to the expenses of children with a developmental or physical disability running through a Health FSA, I can find no clear answer to this question. When I find one, I’ll update this article.

Health Savings Account plans (the bank account):

Unlike Group Medical plans and FSAs, HSA rules are tied to tax dependency rather than age. Once you stop claiming your child as a tax dependent, his/her expenses will no longer be eligible for your HSA account reimbursement. Generally, a taxpayer may treat someone as a dependent for federal income tax purposes if the individual is:

    • the taxpayer’s child and under age 19 at the end of the tax year;
    • the taxpayer’s child, a student, and under age 24 at the end of the tax year; or
    • a member of the taxpayer’s household (other than the taxpayer’s spouse) for whom the taxpayer provided over half of the support for the year and whose gross income does not exceed the personal exemption amount. 

While you can’t run your adult child’s expenses through your HSA bank account if he/she isn’t a dependent you claim on your tax return, you can open an HSA bank account for him/her if you’re keeping him/her on your HSA-qualified group medical plan.  Neither you, nor your adult child, will have any tax-favored contributions but your adult child will have an account where you or he/she can contribute after-tax dollars to save for future medical, dental and vision expenses. 

So for those parents looking to keep their adult children on their plans, the good news is they can keep your child on your group health plan until their 26th birthday and run their expenses through your Health FSA and their expenses through an parent-owned HSA until they are no longer a tax dependent.



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