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November 6, 2008

Qualifying Child Redefined… Again!

A few weeks ago, President Bush signed the Fostering Connections to Success and Increasing Adoptions Act of 2008 (“Adoptions Act”, Pub. L. No. 110-351), which, among other things, amends the definition of qualifying child found in IRC Section 152(c) yet again.  This definition, along with the definition of qualifying relative (which remains unchanged), is important for determining who can receive tax-advantaged benefits, such as benefits from a:

  • Health reimbursement arrangement;
  • Flexible medical spending account;
  • Health savings account;
  • Dependent care assistance program; or
  • Tax-favored coverage under an employer’s health plan. 

For tax years beginning on or after January 1, 2009, below is the modified definition of qualifying child for purposes of IRC Section 152(c) (note: the changes made by the Adoptions Act appear in bold font).

A qualifying child must meet the following criteria:

  1. The individual is the taxpayer’s child or stepchild (whether by blood or adoption), foster child, sibling or stepsibling, or a descendant of one of these.
  2. The individual resides for over 50% of the taxable year with the taxpayer.
  3. The individual is younger than the taxpayer claiming the child, and either:
    • Under the age of 19 by the end of the calendar year;
    • A full-time student who has not attained age 24 by the close of the calendar year; or,
    • Permanently disabled, without regard to age.
  4.  The individual did not provide more than 50% of his/her own support for the year;
  5. The individual cannot file a joint return (this means that most married children could not qualify as a qualifying child); and
  6. If more than one person is eligible to claim the individual, and if no parent claims the individual, a non-parent can claim the individual as a ‘qualifying child’ as long as he/she has a higher adjusted gross income than any parent.

The importance of the “qualifying child” definition relates to whether a tax advantage is available; it is not necessarily relevant for purposes of determining eligibility under a health plan.  Employers should review the eligibility definitions contained in their benefit plan(s).  If the plan(s) uses, for eligibility purposes, the federal tax definition of dependent, it may need to be updated.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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