Employees need not pay extra taxes if they keep children under 27 years of age insured using employer-sponsored health benefits programs.

Internal Revenue Service officials have announced the new young adult continuation coverage tax rules in IRS Notice 2010-38.

The IRS drew up the rules to speed up implementation of the young adult coverage access provisions in the “Affordable Care Act” – the package made of the new Patient Protection and Affordable Care Act and the new Health Care and Education Reconciliation Act.

The changes, effective March 30, will let employers with cafeteria plans immediately “permit employees to begin making pre-tax contributions to pay for this expanded benefit,” officials say.

The tax benefit also applies to other employer-sponsored health plans, benefit programs and retiree health benefits programs, and it applies to self-employed individuals who qualify for the self-employed health insurance deduction on the federal income tax return, officials say.

The tax benefits apply to “a son, daughter, stepchild, adopted child or eligible foster child” who will not reach age 27 by the end of the year, either if the children are already covered under an employer’s plan or are added to an employer’s plan at any time.

Cafeteria plans can let employees use the plans to pay for young adult coverage “even if the cafeteria plan has not yet been amended to cover these individuals,” officials say.

“Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change,” officials say.

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