Newton, MA (PressExposure) May 28, 2009 -- âThe IRS recently issued additional guidance relating to the COBRA provisions adopted in the ARRA. In general, the new provisions provide a 65 percent subsidy for COBRA continuation premiums for up to nine months for workers who have been involuntarily terminated, and their families,â according to Tom Astore, CPA, JD, Tax Manager at Rodman & Rodman (http://www.rodmancpa.com)
Astore noted that these rules apply to group health plans that are subject to the Federal COBRA continuation coverage requirements or to similar requirements under State law.
So, if a company has such a plan, and receives a 35 percent payment from someone eligible for the subsidy, it must make the remaining 65 percent premium payment. However, the company is not "out of pocket" for this cost because they can claim a payroll tax credit to offset this subsidy.
In order to qualify for premium assistance, a worker must:
Â·Â Â Â Â Â Â Be "involuntarily terminated" between Sept.1, 2008 and Dec. 31, 2009; Â·Â Â Â Â Â Â Be eligible for COBRA coverage; and Â·Â Â Â Â Â Â Elect such coverage.Â
The period of coverage ends on 12/31/2009 or on the date the terminated worker becomes eligible for coverage under any other group health plan or for Medicare benefits â whichever comes first. Companies must notify terminated workers of their right to a COBRA continuation coverage subsidy.
The subsidy is not taxable when received, but higher income recipients, such as those with modified adjusted gross income above $125,000 ($250,000 for joint filers) will have to pay back part or all of it at tax return time.
In most cases, an employer will be reimbursed for the subsidy by way of a federal payroll tax credit. Â
âAs you can tell, these rules are complex. Employers can claim the payroll credit, but should consult their accountant on how to properly do so. Special rules will also apply; one example of this is if the employer includes health premiums as part of a severance package. Be sure to consult a professional for guidance,â noted Astore.
For more information about COBRA provisions in ARRA, contact Rodman & Rodman, P.C. at (617) 965-5959.
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