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K-State Today

October 29, 2012

Plan C important information: Health savings account rules for dependents age 19 and older

Submitted by Stephanie Harvey

While the Patient Protection and Affordable Care Act of 2010, or PPACA, allows parents to add their dependent children up to age 26 to their health plans, the IRS has not changed its definition of a dependent for health savings accounts.

This means that parents could have their 25-year-old child covered on their health savings account-qualified high-deductible health plan, but not be eligible to use their health savings account funds to pay for medical bills for that 25-year-old. Reimbursements issued in violation of this rule will be taxed and could be subject to the 20 percent health savings account penalty for an early withdrawal.

For all health savings account plans — group or individual — the IRS definition of a dependent is used when determining whether a dependent qualifies and how benefits are administered for dependents. The account holders must be able to claim the child/relative as a dependent on their tax return, and if they cannot, they are not allowed to spend health savings account dollars on services provided to that child/relative. The IRS defines a qualifying child dependent as follows:

  • Daughter, son, stepchild, sibling or stepsibling (or any descendant of these)
  • Has same principal place of abode for more than one-half of taxable year
  • And not yet age 19 or not yet age 24 if they are a student
  • Or permanently and totally disabled.