IRS says tax bills won't rise for parents who keep older kids on health insurance

WASHINGTON -- Facing urgent questions about one of the most popular new benefits of the recently enacted healthcare overhaul, the Obama administration Tuesday moved to reassure parents that they would not have to pay additional taxes to keep children on their health plans up to age 27.

The president and his congressional allies have billed the benefit for older children as one of the most immediate advantages of health legislation that in other respects remains highly controversial.

Currently, the age at which young adults lose parental coverage varies widely.

Most plans cover dependents until they graduate from college, but many youths don't go to college.

An estimated 485,000 young adults would gain coverage from the provision.

And last week, after prodding from Health and Human Services Secretary Kathleen Sebelius, several leading national insurance companies said they would offer the extended coverage immediately to parents who buy plans on their own.

But the law did not make clear whether employees would have to pay taxes on the additional benefit if they receive health insurance through work, as most Americans do.

On Tuesday, the IRS issued a 12-page notice explaining that the added insurance for children younger than 27 would be tax-free, like other employer-provided health benefits, and that employers with some kinds of plans could begin offering the benefit immediately.

"We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees," IRS Commissioner Doug Shulman said in a statement accompanying the notice.

While the new guidance removes the threat of higher taxes, it does not ensure that all parents will immediately be able to get the benefit.