IRS New Q&As: COBRA Premium Subsidy
The IRS has posted several new questions and answers on the COBRA premium subsidy requirements of the American Recovery and Reinvestment Act of 2009 (ARRA) (P.L. 111-5). The new Q&As, which are dated June 4, 2009, were added to the following sections: administration and eligibility, form preparation and reporting and documentation.
Administration and eligibility. The IRS indicates that if an employer's determination that an employee's termination of employment was involuntary for purposes of the COBRA subsidy provision is consistent with a reasonable interpretation of the applicable statutory provisions and IRS guidance, the IRS will not challenge that determination for purposes of whether the employer is entitled to claim a payroll tax credit for the COBRA premium subsidy provided to the employee.
The IRS also clarifies that if a health plan is not subject to any “COBRA continuation coverage” requirements as defined for purposes of the COBRA premium subsidy, but the employer voluntarily provides continuation coverage, the subsidy does not apply to the voluntary coverage.
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, the end of employment at the end of the period can be considered an involuntary termination. According to the IRS, 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.
An involuntary termination of employment occurs if a member of a military Reserve unit or the National Guard who is employed by a civilian employer is called to active duty regardless of whether the civilian employer otherwise treats the employee's absence as a termination of employment or a leave of absence. Note that eligibility for coverage or coverage by TRICARE health coverage does not end an assistance-eligible individual's period of premium subsidy.
Form preparation. The IRS indicates that in the case of an employer that has appointed an agent to file payroll tax returns and make payroll tax deposits and payments on its behalf, any payroll tax credit to which the employer it is entitled for any COBRA premium assistance that it provides should be claimed on the payroll tax return filed by the agent. Similarly, any payroll tax deposits and payments made on behalf of the employer should be reduced by the amount of the credit. The employer should not file a separate Form 941 showing zero wages and payroll tax liabilities and claiming the credit.
Reporting and documentation. If a plan (other than a multiemployer plan) that is subject to federal COBRA requirements covers employees of two or more unrelated employers, the person entitled to take the payroll tax credit attributable to the premium subsidy provided to an assistance-eligible individual is the former employer of the employee on whose involuntary termination of employment the individual's eligibility for the subsidy is based. Thus, the total amount of the premium subsidy provided to all assistance-eligible individuals under the plan is allocated among the former employers on this basis.
The IRS confirms that no information reporting of the COBRA premium subsidy is required to be provided to an assistance-eligible individual or to the IRS by an employer, multiemployer plan or insurer. However, any person claiming a payroll tax credit for the COBRA premium on Form 941, Employer's Quarterly Tax Return (or other applicable form) must keep records of the individual payments and other documentation to support the credit claimed.
Reprinted with permission. © CCH
<p>The IRS has added several new questions and answers on the COBRA premium subsidy requirements of the American Recovery and Reinvestment Act of 2009. These Q&As, which are dated June 4, 2009, were added to the following sections: administration and eligibility, form preparation and reporting and documentation.</p>