In Technical Information Release 07-16 (“TIR 07-16”), the Massachusetts Department of Revenue (DOR) provided helpful guidance on “imputed income” resulting from group health

insurance coverage of dependents under the expanded dependent coverage requirement of the Massachusetts health care reform act (the “Act”).1 Among other things, the Act broadens the requirements imposed upon Massachusetts-licensed health insurance carriers where dependent coverage is concerned. Specifically, carriers issuing or renewing insured health benefit plans with coverage for dependents must make coverage available for persons “under 26 years of age or for 2 years after the end of the calendar

year in which such persons last qualified as dependents” for federal tax purposes. The Act’s dependent coverage extension addresses a legitimate and compelling policy goal of expanding coverage among young people who “age out” under their parents’ plan but who may not be in a position to immediately obtain other coverage. Prior to the Act, a child generally “aged out” when he or she ceased to be a “dependent” for federal income tax purposes. By expanding dependent coverage, the Act creates a class of dependents who are “dependents” for Massachusetts purposes but not for federal purposes, resulting in the need to impute to the employee as income the fair market value of the coverage provided to the child who no longer qualifies as a dependent for federal purposes. (A similar issue arises in connection with group health coverage provided to nondependent domestic partners and same-gender spouses.)

This client advisory explains the key features of TIR 07-16 and the underlying federal and Massachusetts income tax rules to which it is addressed.