Whose Health Care Expenses are Eligible?

You can use your Health Care FSA or HSA to pay for health-related expenses incurred by any of the following people - even if they are not covered by your employer's health plan:

• Yourself
  
• Your spouse
  
• Your qualifying child*
  
• Your qualifying relative*

A qualifying child.

• Is any of the following: your child, grandchild, stepchild, foster child or adopted child; brother, half-brother or stepbrother; sister, half-sister or stepsister; nephew or niece; or the child or grandchild of any of the relatives listed above. If you are not the child’s parent, then the child’s parent(s) will not be claiming the child as a tax dependent and your adjusted gross income is higher than the adjusted gross income of either of the child’s parents.
  
  
• Will reside with you for more than half the calendar year
  
  
  • Disregard temporary absences due to illness, education, business, vacation, or military service. You must maintain a home for the child during the temporary absence and the child must be expected to return after the absence.
    
    
• As of the last day of the year, will be under the age of 19; or under the age of 24 and a full-time student. Or, is permanently and totally disabled
  
  
  • Full-time student means the child is enrolled at a level the school considers to be full-time for at least five months during the calendar year.
    
    
• Will provide no more than 50% of his/her own support for the calendar year
  
  
• The child is unmarried, or if married, the child will not file a joint return (other than only for a claim of refund) with the child’s spouse for the tax year that corresponds to the year for which you will be using Health Care FSA funds to cover the child’s medical expenses.
  
  
• Is a citizen, national or resident of the US; or a resident of Canada or Mexico (unless the child is adopted)

A qualifying relative.

• Is any of the following: your child, grandchild, stepchild, foster child or adopted child; brother, half-brother or stepbrother; sister, half-sister or stepsister; nephew or niece; the child or grandchild of any of the relatives listed above; your father, grandfather or stepfather; mother, grandmother or stepmother; uncle or aunt; or son-, daughter-, father-, mother-, brother- or sister-in-law. Or, any other person who will reside with you for the entire year (while not in violation of local law). If you are not the child’s parent, the child’s parent(s) will not be claiming the child as a tax dependent and your adjusted gross income is higher than the adjusted gross income of either of the child’s parents.
  
  
• Will reside with you for more than half the year
  
  
  • Disregard temporary absences due to illness, education, business, vacation, or military service. You must maintain a home for the person during the temporary absence and the person must be expected to return after the absence.
    
    
• Is a citizen, national or resident of the US; or a resident of Canada or Mexico (unless the person is an adopted child)
  
• And you will provide more than 50% of this person's support for the calendar year.

Special Circumstances

Divorced or separated parents: Check with your legal or tax advisor to see if special rules apply to you that would enable your child to be claimed by the non-custodial parent or by both parents.

Tie-breaker: If two or more people want to claim the same child as their qualifying child, the person who has the right to is: (1) the child's parent - if one person is the child's parent and the other is not, (2) the parent with whom the child lives with longest in the year - if both people are the child's parents, (3) the parent with the higher adjusted gross income - if both people are the child's parents and the child lives equally with both during the year, or (4) the person with the higher adjusted gross income - if both people are not the child's parents.


Eligible Expenses
A person is a qualifying child or a qualifying relative for an entire calendar year. You can use your Health Care Account to pay for eligible health care products and services used by your qualifying child or relative during your coverage period - provided the expenses are used during the calendar year in which the dependent is considered your qualifying child or relative.

Example: Your employer’s plan year runs from 7/1/2011 through 6/30/2012 and you will be covered for the entire plan year. Your daughter is a qualifying child in 2011, but is not a qualifying child or relative in 2012. The health care products and services your daughter uses between 7/1/2011 through 12/31/2011 are eligible to be paid from your account. The health care products and services your daughter uses between 1/1/2012 and 6/30/2012 are not eligible because she is not a qualifying child or relative at the time she uses the services.

Health Care Reform May Extend Benefits of Employees' Children

• The Health Care Reform Acts now provide an option for certain health care FSAs and HRAs to extend dependent coverage for an adult child up to age 26, regardless of a child's residency, financial dependence, student status, employment, or other factors.
  
  
• The Health Care Reform Act also provides an option for health care FSA and HRA plans to allow pretax coverage and medical expense reimbursements for employee's adult children who have not attained age 27 as of the end of the taxable year, regardless of tax or marital status.

Please note:  These plan provisions are optional under certain health care FSAs and HRAs.  Please check with your employer to determine if these provisions apply to your health care FSA or HRA plan(s).

The health FSA is administered in accordance with federal law.  For purposes of federal law (including federal tax purposes), a spouse includes only a person of the opposite sex who is a husband or wife (Defense of Marriage Act).  This means that a same-sex domestic partner
In contrast, an opposite-sex domestic partner might qualify as a spouse if the relationship was recognized as a common-law marriage under applicable state law.

Note that a same-sex domestic partner still might be a DEPENDENT, if the characteristics of a Qualifying Relative are satisfied, entitling the employee to elect pretax coverage under the health FSA or HRA, for the domestic partner. Likewise, an opposite-sex domestic partner who is not the employee's spouse under applicable state law might also be considered a DEPENDENT, if the characteristics of a Qualifying Relative are satisfied.

If a domestic partner is the stepparent of his or her partner's child under the laws of the state in which the partners reside, then the domestic partner is the stepparent of the child for federal income tax purposes, and the child will qualify for pretax coverage under the health FSA or HRA as long as the child is under age 27 by the end of the taxable year.

Disclaimer
This information is provided for illustrative purposes only and should not be construed as legal or tax advice. You should consult with a professional advisor regarding your personal situation. The above definitions are effective January 1, 2005 and are the result of recent changes in the tax law, including the families Tax Relief Act (WFTRA) and IRS Notice 2004-79 and the Gulf Opportunity Zone Act of 2005. These tests assume the employer's plan defines dependents with reference to Code 152 (as amended), and may be further changed by law.