Home < Human
Resources and Benefits Briefing < November
2005
Your taxable earnings reported by UC to the Internal Revenue Service may be affected if you have UC health plan coverage for a natural or adopted child who does not meet the IRS definition of a qualifying tax dependent. The Working Families Tax Relief Act (WFTRA) amended the definition of a qualifying tax dependent in IRC §152. Now, the University is required to report as taxable income ("imputed income") the UC employer contribution for health plan coverage made for children who do not meet the new IRS definition of a "qualifying child" or "qualifying relative."
UC’s eligibility requirements for a natural or adopted child of an employee, which are broader than the IRS rules and do not require tax dependency, are:
- under age 23 (unless disabled), and
- unmarried
This is perfectly acceptable to the IRS: dependents who meet UC’s eligibility requirements may remain enrolled – but, it means that if they do not meet IRS qualifying requirements for tax dependency, UC will have to report the employer contribution as taxable income.
IRS rules
As defined in IRC §152, a "qualifying child" must be the natural or adopted child of the taxpayer (or bear other specified relationship to the taxpayer) and also meet the following requirements:
- have the same principal place of abode as the taxpayer for more than one-half of the taxable year,
- satisfy age requirements (i.e., must not have attained age 19 before the close of the calendar year in which the taxable year of the taxpayer begins if not a student or, if a student, must not have attained age 24 before the close of the calendar year in which the taxable year of the taxpayer begins, or must be permanently and totally disabled), and
- not have provided over one-half of such individual’s own support for the calendar year in which the taxable year of the taxpayer begins.
A child who does not qualify as a "qualifying child" may be considered a tax dependent under the definition of a "qualifying relative" if you provide over half the child’s support and satisfy other requirements. The qualifying child and qualifying relative rules can be found in IRS publications. Check with IRS (http://www.irs.gov, 1-800-829-4933, TDD 1-800-829-4059) or your tax advisor for detailed IRS qualification rules.
Self-identification process
If your natural or adopted child having UC health plan coverage does not meet IRS qualifying rules, you will need to self-identify to the University so that UC can calculate and report the taxable UC employer contribution made on behalf of the child.
Beginning January 2, 2006, employees should use form UPAY 850 (R 10/05) for this purpose. The form, which will not be available until that date, will be online for downloading (http://atyourservice.ucop.edu), and can also be obtained in your department or from your local Benefits Office. You should complete form Sections 1 and 5 and sign and date the form at the bottom. These instructions will be posted online as of January 2.
Forms submitted in accordance with local January payroll processing deadlines will result in imputed income beginning in February for those paid monthly (earlier for those paid biweekly).
For more information
Employees are responsible for being aware of IRS rules that may apply to them. The University cannot provide information or advice about IRS rules or personal tax matters. For assistance or information on the IRS definition of a qualifying tax dependent, contact your tax advisor or check with the IRS (http://www.irs.gov, 1-800-829-4933, TDD 1-800-829-4059). Tax dependency information is contained in IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information) and Publication 517 (Your Federal Income Tax)
