Independent Contractor Compliance Blog

WASHINGTON – The IRS recently announced that, “Workers who lose their jobs during January and February may qualify for a 65-percent subsidy on their COBRA health insurance premiums, and these newly-eligible individuals, along with those already receiving the subsidy, can now receive it for up to 15 months…”

This is an opportunity to help those who lost their COBRA health coverage because of the poor economy.

This is an extension of the current program.

The American Recovery and Reinvestment Act of 2009, originally set up a special provision for qualified individuals to receive a COBRA subsidy for nine months. Under that law the subsidy was scheduled to expire at the end of 2009. However, on December 19, 2009, Congress extended the provision as part of the Department of Defense Appropriations Act, 2010. As a result, workers who are involuntarily terminated from employment between September 1, 2008, and February 28, 2010, may be eligible for a 65% subsidy of their COBRA premiums for a period of up to 15 months.

“Assistance-eligible individuals” are generally defined as “involuntarily terminated employees who had a qualified COBRA plan when employed and who pay 35% of the COBRA premium and meet certain other requirements…” Coverage may also include family members of those individuals.

Employers can take tax credit for required COBRA contributions

Under the law, employers provide COBRA coverage to “assistance-eligible individuals.”  Employers can then be reimbursed for the 65% contribution by claiming a credit on their federal payroll tax returns, such as:

• FORM 941, Employers QUARTERLY Federal Tax Return,
• FORM 944, Employer’s ANNUAL Federal Tax Return,
• FORM 943, Employer’s Annual Federal Tax Return for Agricultural Employees.

Be sure to maintain supporting documentation for the claimed credit. If you are audited you will need to prove the individual qualified and that you contributed the 65% you claimed as a credit.

Employers are required to notify eligible individuals.

Under the law the administrator of a group health plan or “other entity” must notify assistance-eligible individuals of the extension by February 17, 2010. Even if the nine months of subsidy has already ended, the new law provides an extended period for the retroactive payment of their 35% share during a transition period.

For more information I recommend you talk with your tax expert, or check the IRS website.