Reminder: You May be Able to Take COBRA Credit, on Your IRS Form 941, For Your Former Employees
The American Recovery and Reinvestment Act (ARRA), enacted in February of this year, created or expanded a variety of business tax deductions and credits. Because some of these changes are only available for 2009, you may only have a few months to take action and save on taxes. Even though I’ve covered this topic before this is a good time to remind you of these one time opportunities. For example:
COBRA Credit
Employers that provide the 65 percent COBRA premium subsidy provided for under ARRA to eligible former employees may claim credit for this subsidy on their quarterly or annual employment tax returns (Forms 941 or 940). Doing this allows you to reduce the employment tax deposits you make by the amount of the credit, which may improve your cash flow.
The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA was amended by ARRA to allow the temporary continuation of COBRA health coverage at group rates for 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.
The former employee pays a premium for COBRA
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.
The employer takes a credit
Employers must treat the 35 percent payment by their 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.
For more details
See my April 14th article on this topic in the NEWSFLASH section of this website. Also, you may go to www.irs.gov, under “Frequently Asked Questions” and get more information the IRS has provided about this temporary credit.
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