The final rules recently released include a significant amount of clarification  regarding dependent-care coverage.

Originally, for pay-or-play purposes, the feds had defined the term “dependents” to include biological children, stepchildren, adopted children and foster children.

In the final rules, however, the feds define dependent as a child (adopted or by birth) under the age of 26. That means employers can exclude the following individuals from dependent care coverage without being penalized:

  • foster children
  • step children, and
  • children who are not U.S. citizens or nationals, unless the children are residents of a country contiguous to the U.S. — i.e., Canada or Mexico — or who are within a special tax exception that applies to adopted children.