The Minnesota office of Management and Budget has changed its policy on insurance coverage that will directly affect employees who have divorced and still have their ex-spouses on their health insurance plans. MMB interpreted Minnesota law as requiring health insurance coverage for former spouses and children, but in light of federal IRS rules on “imputed income”, has changed its interpretation of the Minnesota law. The approximately 750 State employees in this situation need to take immediate action.
Employees with ex-spouses and children currently on their family coverage will have their coverage experience full taxation starting March 31 unless the former spouse elects COBRA coverage. Because the State does not maintain contact information on the former spouses it is imperative that the current state employees provide that information so the former spouses can be contacted.
If there is no response, coverage for the former spouses and children will continue. BUT the “fair market value” of the health insurance (about $900 per month) will be added to the income of the state employee, resulting in a very noticeable increased tax liability. Again, this is due to the inclusion of the current interpretation of “imputed income” from the IRS. Other noncash benefits are taxed similarly; gym membership reimbursements, wellness program rewards, etc, are subject to this type of taxation.
By the time this is published, letters will have gone out to affected employees. Be sure to respond so that the additional taxation doesn’t affect you if your former spouse is on your insurance. There may be additional questions that come from the specifics of each divorce decree. It is important to understand those situations and seek counsel when responding to them; each legal situation is different and affected employees need to navigate them.