Can employee's children be dependents for the purpose of a health care

[Guest CLKeown]

I have an employee who is divorced, his children live with his former spouse, who claims them on her tax return. However, the employee pays more than 50% of their support.

Can his children be considered "Eligible Dependents" for the purpose of a Health Care FSA enrollment?

I know that the IRS allows a person to be considered a dependent for the purpose of medical expense deduction even if you cannot claim them on your return. Provided, of course, that you provided more than half of the individual's total support of the calendar year. Does this apply in FSA's as well?

At this point I am inclined to allow the enrollment, but I wanted some further clarification, as I am a "payroll" person and benefits are not really my area of specialty.

Thanks,

Carole

[Joe Priselac]

In a divorce situation the child is considered a dependent of both parents. They can submit expenses under a FSA they have payed for such as co-pays.

[Guest kclark]

With reference to benefit plans, the definition of a "qualified" dependent usually refers to the common definition of a child being claimed as a dependent on the participant's Federal income tax return for the plan year. If the participant can show proof that the child has been determined to be a qualified dependent by the IRS (which has certain criteria that must be met) and has been claimed as a dependent on recent tax returns, then my feeling is that the benefit requirements have been met.

Our TPA administering our FSA has stated in their SPD that the child MUST live with the participant in a parent-child relationship. I feel this is incorrect based on the legal research I have done and am questioning them on this. Thanks for bringing it up.....it made me look into our own definitions!

[jeanine]

We have this question come up at least once a week as we are a third-party administrator of about 150 self-funded plans and over 1000 insured product plans. Although we are not administering FSA's, we are administering ERISA health plans and perhaps I can point you in the direction you are looking for. Regardless of plan language, federal law requires ERISA plans to honor any QMCSO (Qualified Medical Child Support Order) issued by a state court or state child support agency regardless of whether the child lives with the enrollee, is born out of wedlock, or can be claimed as a dependent on the employee's federal income tax. Any exclusionary language to the contrary is void if a valid QMCSO exists. I have greatly simplified this explanation and an unsure if it even applies to FSA's since I am not sure if ERISA applies to them.

[Joe Priselac]

I think a little clarification is in order. The original question referred to a Health FSA in a Section 125 plan. A health FSA is nothing more than a self-funded health plan. The Section 105 rules apply to the operation of health FSA like they do for any other self-funded health plan. In section 105(B) it says "any child to whom section 152(e) applies shall be treated as a dependent of both parents for purposes of this subsection". Section 152(e) talks about children of divorced parents. I hope this is helpful.

[Lisa Hand]

Thanks Joe for the great response.

kclark - your TPA may have misunderstood the question and thought you were talking about Dependent Care Assistance (DCA FSA) costs, which do have a "keeping up a home" test and do have an exception for a custodial parent who can not claim the child as an exemption.