Q&A: How Do Health Benefits Apply to Adult Children?

Question:

We have several employees who are keeping their adult children on their health insurance until they turn 26. They have raised questions about how their benefits work when they cover an adult child under our health plan, specifically regarding their participation in and use of Health Savings Accounts (HSAs). Could you walk me through what employees need to know?

Answer:

The Affordable Care Act (ACA) requires employers to let employees cover their adult children up to age 26. While this is a valued benefit for many employees, it also raises several tax and legal considerations. Of particular importance is the HSA. Below is a summary of the main issues employees should understand regarding how their benefits work in relation to their adult children.

Duration of Coverage: While coverage for adult children is required only through the end of the month in which the dependent turns 26, some health plans extend benefits coverage until the end of the calendar year. Employees should be advised which option their plan offers.

HSA Contributions: Adult children who are covered under a parent’s High-Deductible Health Plan (HDHP) may be eligible to establish their own HSA. This is contingent on the adult child not being claimed as a dependent on a parent’s tax return and not having other disqualifying coverage, such as insurance through their own employer or participation in a Health Flexible Spending Account (FSA).*Both the parent and the dependent may contribute up to the family HSA contribution limit, which is $8,750 in 2026.

HSA Withdrawals: Employees may use their own HSA funds to pay for the qualified medical expenses of a dependent child, provided the child meets the IRS definition of a tax dependent. Typically, this includes children who are: 1) under age 19; or 2) under 24 and a full-time student who does not provide more than half of their own support. Any withdrawals made to pay medical expenses of non-tax dependents will be subject to taxes and penalties. Note: The same rules apply regarding a parent’s use of an FSA to pay for an adult child’s medical expenses as for HSAs.

The key takeaway is that while employees can cover their adult children up to age 26 on the health benefits plan, the same is not true when it comes to using an HSA (or FSA) to pay the child’s medical expenses. Understanding the distinction helps employees make the most of their health benefits while avoiding unintended tax consequences.

*Neither the employee nor the child can contribute to an HSA while participating in a Health FSA.