Wednesday, May 8, 2013

Who pays for health insurance after the divorce?

Even if you can stay on an ex-spouse's health insurance (which we cover in this previous post), there are two potential costs of staying on an ex-spouse's insurance.

The first is the actual cost of the plan. If the plan participant would qualify for a lower cost plan, for instance if the plan participant is single with no children, then the "additional cost" must be paid by either the plan participant or their ex-spouse. Usually the ex-spouse seeking this coverage will pay the "additional cost" but this must be defined in a court order or agreement.

In addition, the IRS defines excludaible fringe benefit costs to include only costs for spouses and other dependents. Ex-spouse coverage is not excludible and is therefore a taxable benefit. Although often overlooked by employers, many employers have started to treat these ongoing benefits to ex-spouses as taxable income to the employee.

For more information about the taxation of health insurance benefits read the following article: Health Insurance Taxation Issues Post Divorce by Justin Kelsey and Chris Chen.

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