Does Using My Parents’ Health Insurance Make Me a Dependent?

Despite a raft of new regulations that are designed to make health insurance more affordable and prevalent, finding adequate, inexpensive coverage is still a challenge. Even as the cost of single-coverage health insurance premiums rise, fewer and fewer companies are offering health insurance coverage as an employee benefit. The companies that still offer such benefits are asking their employees to shoulder burdens like reduced preventive-care coverage, higher co-pays and more expensive premiums. Even if you have access to an employer-sponsored health insurance plan, it might not be a very good deal.

If you're relatively young, you may have another option. Thanks to the Affordable Care Act, American health insurance companies are now compelled to insure certain minor and adult children on their parents' policies. Although such coverage can be denied by any children or parents who don't need it, insurance companies no longer have any say in the matter. For the first 25 years of a person's life, he or she may procure health insurance in this way. Once a person turns 26, insurance companies can drop him or her from this "family plan" without providing an explanation.

Crucially, the new law makes no distinction between minor and adult children. In other words, "children" who are over the age of 18 and earn enough money to support themselves may still receive health insurance coverage from their parents. This has no bearing on their tax status. In order to secure this benefit, parents aren't required to claim such children as dependents on their tax returns. Likewise, these children aren't required to forgo the "personal tax deduction" that non-dependents are entitled to claim. This is important: Since there are tremendous financial benefits to being a non-dependent, the so-called "health insurance provision" is a valuable tool. Depending upon the circumstances, the ability of a non-dependent child to procure health insurance under a parental plan can be viewed as a major informal tax deduction.

It may also be a financial blessing for parents who wish to carry their kids on their health insurance policies. In order to claim someone as a dependent on your tax return, you must provide him or her with significant financial support. If you account for less than 65 percent of his or her total earnings, it's unlikely that you'll be able to claim an adult child as a dependent. This rule doesn't apply to minor children. Since they're legally bound to their parents, minor children may be claimed as dependents in most situations. This arrangement may only be changed through the legal emancipation process.

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