Pre-Tax Deductions & COBRA

[Guest AHayhow]

Can an employee have COBRA payments for medical insurance deducted from his/her paycheck on a pre-tax basis to pay for a former-dependent's COBRA premium? The daughter's qualifying COBRA event was college graduation and no longer qualifies as a dependent as defined in the medical SPD.

I believe the answer is no since the daughter no longer qualifies as a dependent as defined by the IRS, but I have a client that wants me to show them "where it states that."

Thanks!

[SLuskin]

You cannot pretax anything in a cafeteria plan for a person who is not a tax relative. Example. You pay your mother's medical expenses out of the goodness of your heart. No 1040 deduction, and no Section 125 reimbursement. Your mother is your bona fide dependent for income tax purposes. You pay her medical expenses. Either deductible on your income tax or you can run her expenses through your cafeteria plan (not both for the same expense, of course).

There are times when a child may still be your dependent for federal income tax purposes, but for whatever reason, does not satisfy the dependent requirements of your health plan. Those COBRA premiums can be pretaxed. Once that child is no longer your dependent for federal income tax purposes, all those payments are gifts.