Q.- An employee's child aged out of the dental plan. We offered COBRA continuation coverage for the child and the child elected COBRA. Can the employee pay the cost of COBRA continuation coverage on a pre-tax basis through salary reduction contributions?
A.- Yes, in limited circumstances depending on the structure of the employer's cafeteria plan. The employer's cafeteria plan might be designed to allow the employee to pay for COBRA coverage for the dependent so long as the child continues to qualify as a tax dependent for health coverage purposes. Concerns do arise if payment for the COBRA premiums spans across different plan years. This situation could be considered deferred compensation which is not permitted under IRS cafeteria plan rules. You might want to consult your tax advisor before allowing the pre-tax deductions for the coverage.
