IRS answers more pressing COBRA questions

If you’re an employer struggling with COBRA questions, the Internal Revenue Service (IRS) has published added guidance on the federal premium subsidy to help answer some of the most common issues.

The new COBRA regulations, which were part of President Obama’s American Recovery and Reinvestment Act of 2009, contain specific changes to COBRA health benefit requirements that affect former employees, their employers and COBRA coverage providers.

Under the subsidy, involuntarily terminated employees must pay 35 percent of the COBRA premium and employers must front the money for the remaining 65 percent. After paying insurers directly, employers can then claim the payment as an offset against payroll tax liabilities using the updated Form 941.

The IRS published information earlier this year to answer major questions from the public regarding eligibility for the COBRA subsidy. Information has been added to the question-and-answer style document as new questions develop.

Last week, the IRS updated the online document with additional information including guidance on whether an employee who is a reservist would be eligible for the subsidy if called to active duty.

Q. Does an involuntary termination of employment occur if a member of a military Reserve unit or the National Guard who is employed by a civilian employer is called to active duty?

A. Yes. This is the case regardless of whether the civilian employer otherwise treats the employee’s absence as a termination of employment or a leave of absence.

The IRS also added information in response to questions regarding elected officials and employees hired for a limited period of time.

Q. In the case of an employee who is hired only for a limited period, such as a seasonal worker, or a teacher hired only for one school year, can the end of employment at the end of the period be considered an involuntary termination?

A. Yes. Under Notice 2009-27, Q&A-1, an involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. Thus, if an employee hired for a limited period works to the end of the period, is willing and able to continue employment, and terminates employment because of the failure of the employer to offer additional work, an involuntary termination occurs for purposes of the premium subsidy.

For more answers to questions on COBRA continuation health coverage read the IRS FAQs for employers.

IRS answers more pressing COBRA questions

DOL issues model COBRA notices for employers

Late last week the Department of Labor (DOL) issued four model notices that employers can use to explain federal premium subsidies available under COBRA.

As part of the economic stimulus plan President Obama signed into law in February, employees who were involuntarily terminated between September 1, 2008, and December 31, 2009, are eligible to retain their group health coverage for a period of up to nine months by paying a portion of the COBRA premium.

Involuntarily terminated employees must pay 35 percent of the COBRA premium and employers must front the money for the remaining 65 percent. Employers will pay the insurer directly, then claim it as an offset against payroll tax liabilities. Payroll will then report any subsidies and take the offset on an updated Form 941.

"Our action today gives workers and their families useful information on their right to receive the COBRA subsidy and makes it easier for employers and plans to meet their notice obligations. Given the current economic situation facing dislocated workers and their families, it is very important that individuals do not lose their group health coverage," said Alan D. Lebowitz, deputy assistant secretary of labor for the department's Employee Benefits Security Administration (EBSA).

Employers can send the DOL’s model notices to COBRA beneficiaries advising them of the subsidy and how they can enroll for coverage.

Designed to fit different situations, the four COBRA model notices include:

• A general or “full” notice to be given to beneficiaries who lost group coverage between September 1, 2008, and December 31, 2009.
• An abbreviated general notice that would be for beneficiaries who are currently receiving unsubsidized COBRA.
• An alternative notice explains the right of individuals working in states with continuation coverage laws, or “mini-COBRA” laws, which apply to employers with fewer than 20 employees.
• A notice of extended election periods for eligible individuals who lost their jobs before the stimulus plan was signed into law, between September 1, 2008 and February 16, 2009, and declined or discontinued COBRA coverage at the time.

Each package includes information of the premium reduction provisions, a series of questions and answers, and which forms to use in requesting the premium reduction or COBRA coverage.

More information on the COBRA subsidy:

• Stimulus plan subsidizes COBRA, expands unemployment insurance
• IRS releases info to help employers claim COBRA credit

DOL issues model COBRA notices for employers

IRS releases info to help employers claim COBRA credit

The Internal Revenue Service (IRS) has released detailed information that will help employers claim credit for the COBRA medical premiums they pay for their former employees, a measure contained in President Obama’s economic stimulus package passed last month.

Employers will find a comprehensive set of questions and answers at IRS.gov, in addition to a revised version of the quarterly payroll tax return employers must use to claim credit for COBRA medical premiums paid for former employees.

Beginning with the first quarter of 2009, the Employer’s Quarterly Federal Tax Return, Form 941, is the form used to claim the new COBRA payments credit.

“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. “We will continue our work in the weeks ahead to help employers implement this crucial change for the nation’s unemployed.”

In February, President Obama signed the American Recovery and Reinvestment Act of 2009. The new law contains specific changes to COBRA health benefit requirements, changes that affect former employees, their employers and COBRA coverage providers.

Under the new law, eligible former employees, enrolled in their employer’s health plan at the time they lost their jobs, are required to pay only 35 percent of the cost of COBRA coverage. 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.

The IRS notes that employers must maintain supporting documentation for the COBRA credit claimed, including:

• 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.

Visit the Department of Labor for more information about COBRA payments and read another HR Forum post on the subject: Stimulus plan subsidizes COBRA, expands unemployment insurance.

IRS releases info to help employers claim COBRA credit