How to provide COBRA Health Care Subsidy

The new COBRA health care law changes went into effect when President Obama signed the American Recovery and Reinvestment Act of 2009. These changes affect all employers that have recently terminated any employee involuntarily between September 1, 2008, and December 31, 2009. The following steps are geared to help employers administer COBRA benefits and follow the new COBRA regulations.

Difficulty: Challenging

Instructions

1. 
    

   Find out what former employees may be eligible for the COBRA subsidy. Any former employee that was involuntarily terminated by your firm between September 1, 2008, and December 31, 2009, is eligible for the COBRA subsidy. The credit only applies to those that were involuntarily terminated and not those that voluntarily left the company. Compile a list of these individuals in your company and also their eligible spouses and dependents. The COBRA subsidy can last up to nine months for each eligible individual.

2. 
    

   Check with your health care provider and your state laws to find out the COBRA requirements for your health plan. Any group health plan that is subject to COBRA regulations will also be subject to COBRA continuation coverage requirements. If you are an employer in a group plan, you will likely be required to pay 65% to the COBRA continuation coverage subsidy. The terminated employee is required to make the other 35% payment.

3. 
    

   Take the COBRA health care employer reimbursement tax credit by filing Form 941 to the IRS on your quarterly federal tax return. Claim the credit on line 12a of Form 941 and add the number of individuals the firm paid the subsidy on line 12b. According to the IRS, the "amount of the COBRA subsidy the employer provides during the quarter (based on the 35 percent premium payments received from assistance eligible individuals during the quarter) will be treated as having been deposited on the first day of the quarter and applied against the employer's deposit requirements." Therefore, the employer can reduce the amount of payroll taxes owed to the IRS based on this new COBRA tax benefit.

4. 
    

   Maintain supporting documentation when claiming the COBRA health care subsidy tax credit. The following documents should be maintained: receipts from individuals who pay their 35% share; proof of timely payment to health care provider to provide COBRA continuation coverage; and a record of SSN of all covered former employees.

Resources

• More information from IRS webpage

[makaksa]

on 5/6/2009 Helpful information on COBRA.

[admiller]

on 5/6/2009 Great, timely information. Thank you.