The State of Minnesota will pay nearly $7 million to the Internal Revenue Service (IRS) after violating federal tax rules governing an insurance policy that required some state government employees to continue covering ex-spouses on their health plans.
In June, Minnesota Management and Budget (MMB) requested a $2.47 million transfer from Minnesota’s General Contingent Account to help pay a $6.8 million settlement with the IRS. The settlement was reached after MMB discovered that insurance coverage for ex-spouses of state employees was incorrectly offered on a pre-tax basis rather than a post-tax basis.
According to MMB, the extension of insurance coverage to ex-spouses was based on “past guidance from state insurance regulators” that “required continuation of coverage if, at the time of the divorce, the former spouse and one or more children in common were covered.”
However, MMB learned that such coverage “should have been provided on a post-tax basis to comply with federal tax requirements.”
Minnesota’s failure to abide by that rule means the state now owes $6.8 million for the taxes that would have otherwise been paid.
“This agreement requires the state to pay an amount equivalent to what the state should have withheld and remitted to the IRS for Medicare and Social Security tax contributions and income tax for the last three tax years (2022-2024),” according to MMB.
MMB later notified state employees that health coverage for their ex-spouses would end on March 31, 2025. Those former spouses were offered COBRA continuation coverage at their own expense, and coverage for children was not affected.
A letter from MMB said it intends to pay the $6.8 settlement with a mix of agency funds, contributions from other departments based on “the number of ex-spouses historically covered,” and the $2.47 million funding request. That funding request was later granted by Gov. Tim Walz.
Alpha News reached out to MMB for comment but did not receive a response.
Jenna Gloeb
Jenna Gloeb is an Edward R. Murrow Award-winning journalist, media producer, public speaker, and screenwriter. Most recently, she worked as a reporter and on-air host for CCX Media. Jenna is a Minnesota native and resides in the Twin Cities with her husband, son, daughter, and two dogs.
