J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

3.1 Tax-Free Health and Accident Coverage Under Employer Plans

You are not taxed on contributions or insurance premiums your employer makes to a health, hospitalization, or accident plan to cover you, your spouse, your dependents, and your children under age 27 whether or not they can be claimed as your dependents. If you obtain coverage by making pre-tax salary-reduction contributions under your employer’s cafeteria plan (3.14), the salary reductions are treated as employer contributions that are tax free to you. If you are temporarily laid off and continue to receive health coverage, the employer’s contributions during this layoff period are tax free. If you are retired, you do not pay tax on insurance paid by your former employer. Medical coverage provided to the family of a deceased employee is tax free since it is treated as a continuation of the employee’s fringe-benefit package. If you are age 65 or older, Medicare premiums paid by your employer are not taxed. If you retire and have the option of receiving continued coverage under the medical plan or a lump-sum payment covering unused accumulated sick leave instead of coverage, the lump-sum amount is reported as income at the time you have the option to receive it. If you elect continued coverage, the amount reported as income may be deductible as medical insurance if you itemize deductions (17.5).

If your employer provides health and accident coverage to your live-in companion who is not recognized as your “spouse” under ...