Please be advised - The IRS is implementing tax-related provisions under the new American Recovery and Reinvestment Act of 2009 as quickly as possible.
- COBRA: Health Insurance Continuation Subsidy. The IRS has provided extensive guidance online for employers, including an updated Form 941, as well as information for qualifying individuals.
- Payroll Checks Increase This Spring. In relation to the Making Work Pay Tax Credit, the IRS has issued new withholding tables for employers (Notice 1036). The IRS asks that employers begin using these new tables as soon as possible, and no later than April 1, 2009.
GTM Payroll Services encourages all clients to maintain proper supporting documentation for the COBRA credit claimed. Such documentation includes, but is not limited to:
- Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35 percent share of the premium.
- In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.
- In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
- Declaration of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to Dec. 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
- Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage.
- A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
- Other documents necessary to verify the correct amount of reimbursement.
This documentation must be maintained, but is not be required to be submitted to the IRS.
A few general items you need to be aware of regarding the new recovery package:
Could the new law affect 2008 tax returns? Generally, no. The new law does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.
There are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns.
Where can I find more details on the tax provisions of the recovery law? The IRS will be providing more details on this web site as they become available. Currently a summary of the key provisions is currently available from the Senate Finance and House Ways and Means committees, as well as information available in the SSA/IRS Newsletter for Employers (Spring 2009).
COBRA Information for Employers
Under the American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for COBRA continuation health coverage, or similar coverage under State law, may receive a subsidy for 65 percent of the premium. These individuals are required to pay only 35 percent of the premium.
The employer may recover the subsidy provided to assistance-eligible individuals by taking the subsidy amount as a credit on its quarterly employment tax return. The employer may provide the subsidy — and take the credit on its employment tax return — only after it has received the 35 percent premium payment from the individual.
- How will an employer be reimbursed for the COBRA subsidy that it has provided to eligible individuals? The COBRA subsidy amount is reimbursed by being claimed as a credit on the Form 941. The Form 941 has been revised to allow for this credit.
- How does an employer claim the credit for the COBRA subsidy? The credit is claimed on Line 12a of the January 2009 revision of the Form 941, which was posted on the IRS website on Feb. 20. In addition, the Form 941 filer also needs to include the number of individuals provided COBRA premium assistance on Line 12b.
- Is the employer required to provide the COBRA subsidy? The subsidy requirement applies to group health plans that are subject to the Federal COBRA continuation coverage requirements or to similar requirements under State law. If you are an employer with such a plan and you receive a 35 percent payment from an assistance-eligible individual, you are required to make the remaining 65 percent payment.
- What if the employer’s group health plan is self-insured? Do the subsidy requirements apply? Yes, the subsidy requirements apply to all plans subject to the COBRA requirements, including self-insured plans. In that case, the employer must provide the COBRA coverage if the assistance eligible individual pays 35 percent of the otherwise required premium. The remaining 65 percent is treated as a payment of payroll taxes by the employer maintaining the plan.
- Is the employer required to claim the credit on Form 941 for the quarter during which the COBRA subsidy is provided to assistance eligible individuals? No. Instead of claiming the credit on Form 941 for the quarter during which the COBRA subsidy is provided, the employer may generally choose to claim the credit on Form 941 for a later quarter in the same calendar year.
- Alternatively, if the employer has not claimed the credit on the original Form 941 for the quarter during which the COBRA subsidy was provided, the employer can file Form 941X for that quarter. In all cases, however, if an employer chooses to reduce its payroll tax deposits during a quarter by the amount of subsidy provided during the quarter (or during a previous quarter), it must claim the credit for that subsidy amount on Form 941 for the quarter during which its payroll tax deposits were reduced. In addition, of course, an employer may not claim credit for the same subsidy amount on Form 941 for more than one quarter.
- Is there a specific date when employers can no longer take this credit? An individual can be eligible for the COBRA subsidy based on an involuntary termination of employment that occurs as late as Dec. 31, 2009 (the qualifying event), and the subsidy can apply for up to nine months of COBRA coverage, which generally begins shortly after the qualifying event. It is therefore expected that eligibility for the subsidy will be exhausted by the end of 2010 and Form 941 for the fourth quarter of 2010 will be the last time to take the subsidy credit.
GTM's Business Resource Center offers clients and partners with valuable tools and resources needed to help address your tax and payroll needs.
Quick Links for Businesses
More information on the COBRA subsidy, and answers to common questions, are available from the U.S. Department of Labor and the IRS Newsroom.
At GTM we aim to provide access to the most comprehensive services & solutions available with better advice, better service and better value...for an easier life!
The items included in this blog are informational only and are not meant to exclude the tax advice from an accredited representative. Please consult a professional tax advisor for more information and to determine how any item applies to your personal tax scenario.
