Question of the Week

Q.- An employee’s daughter is aging off of our health plan. The daughter will be continuing coverage under COBRA. Can our employee pay for his daughter’s COBRA premiums on a pre-tax basis?

A.- The answer depends on the terms of the employer’s cafeteria plan. It is a Code section 125 matter, not a COBRA matter.

An employer’s cafeteria plan may be drafted to allow an employee to purchase COBRA coverage on a pre-tax basis for a child on COBRA coverage. The child would have to be under age 27 at the end of the taxable year or qualify as the employee’s dependent for health coverage purposes. The employer’s cafeteria plan would have to be drafted to allow the pre-tax payment and the plan would have to recognize the drop in active coverage as a mid-year change event to allow the new pre-tax payment.

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