Dependent who is not claimed on employee's tax return

[alexa]

I have an employee who has legal guardianship (joint with her live-in married boyfriend) Apparantly he cannot get a divorce since separated spouse is in & out of jail<gr>! The one child is the boyfriend's child and the other is his stepchild. Neither children are related to the employee. Altough the employee does jointly support the 2 children. The boyfiriend claims both children on his tax return as dependents; the employee does not.

We allow the employee to cover children if there is court ordered legal guardianship documentation as this employee has.

Is there a taxation issue of the value of the medical benefits provided for the children. Or is this covered under section 152 definition?

Lexy

[J Simmons]

There is a taxation issue.

A live-in boyfriend's child is not the employee's qualifying child under IRC § 152.

The child might be a 'qualifying relative' under IRC § 152(d)(2)(H). You'll need to vet out if the requirements of IRC §§ 152(d)(1)(B), © and (D) are also met.

If not a qualifying relative, the value of the coverage to the boyfriend's child should be added to taxable income reported on the employee's Forms W-2.

[Guest Mr. Kite]

There is a taxation issue.

A live-in boyfriend's child is not the employee's qualifying child under IRC § 152.

The child might be a 'qualifying relative' under IRC § 152(d)(2)(H). You'll need to vet out if the requirements of IRC §§ 152(d)(1)(B), © and (D) are also met.

If not a qualifying relative, the value of the coverage to the boyfriend's child should be added to taxable income reported on the employee's Forms W-2.

Section 152(d)(1)(B) does not have to be satisfied -- see section 105(b).