Independent Contractor Compliance Blog - by Collabrus™

The American Recovery and Reinvestment Act of 2009 includes changes to the health benefit provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA. The new law provides the right to temporary continuation of COBRA health coverage at group rates for certain former employees, retirees, spouses, former spouses and dependent children. The new COBRA subsidy provisions also apply to insurers required to offer continuation coverage under state law similar to the federal COBRA.

COBRA generally covers health plans maintained by private-sector employers with 20 or more full and part-time employees. It also covers employee organizations or federal, state or local governments. It does not apply to churches and certain religious organizations.

Workers who have lost their jobs may qualify for a 65 percent subsidy for COBRA continuation premiums for themselves and their families for up to nine months.

Eligible individuals will have to pay 35 percent of the premium to their former employers.  To qualify, a worker must have been involuntarily separated between Sept. 1, 2008, and Dec. 31, 2009.

NOTE: Workers who lost their jobs between Sept. 1, 2008, and the enactment of this law, but failed to initially elect COBRA because it was unaffordable, get an additional 60 days to elect COBRA and receive the subsidy.

There are limits

This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000, or $250,000 for those filing joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy.

Employers must report

The IRS announced that Form 941, Employer’s Quarterly Federal Tax Return, will be sent to about 2 million employers in mid-March. The form will be used to claim the new COBRA premium assistance payments credit, beginning with the first quarter of 2009.

Employers must treat the 35 percent payment by eligible former employees as full payment, but the employers are entitled to a credit for the other 65 percent of the COBRA cost on their payroll tax return.

Employers must maintain supporting documentation for the credit claimed. This includes:

• Documentation of receipt of the employee’s 35 percent share of the premium.
• In the case of insured plans: A copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier.
• Declaration of the former employee’s involuntary termination.

More information will follow

“This is the first step in our effort to provide employers with information on this important health benefit for people who have lost their jobs,” said IRS Commissioner Doug Shulman in a statement issued this week. “We will continue our work in the weeks ahead to help employers implement this crucial change for the nation’s unemployed.”