News
Guidance Issued on COBRA Subsidies
February, 27 2009
President Obama signed the American Recovery and Reinvestment Act of 2009 (also known as the “Stimulus Bill”) on February 17, 2009. The law provides for a subsidy of 65% of COBRA premiums for former employees for up to nine (9) months following an involuntary termination. For more information on the requirements, please see our previous article by clicking here.
The Internal Revenue Service (IRS) and the Department of Labor (DOL) have now issued some guidance and forms for employers to use in administering the COBRA subsidies required by the Stimulus Bill.
IRS Guidance and Forms
The IRS has issued a revised form 941 on which employers file their quarterly payroll tax returns. The COBRA subsidy law provides that the 65% subsidy can be recovered from the federal government by taking a credit against payroll taxes owed. Importantly, the form and guidance issued by the IRS appear to clear up one quirk in the law. The law provides that, for insured health plans, the insurer is entitled to claim the subsidy credit. The IRS’s forms and guidance, however, indicate that employers who pay the subsidy may claim the credit.
A copy of the revised form 941 and accompanying instructions can be found on the IRS’s website, or by clicking the links here: (form, instructions). Some important points to remember are:
- The former employee must pay his 35% share of the full premium before the employer may claim credit for the subsidy.
- Employers claiming a credit for paying the subsidy must retain – but do not need to file with the form 941 – (1) an attestation for each former employee for whom a subsidy is paid that the termination was involuntary, (2) a list of the SSNs and amount of subsidy for each former employee for whom a subsidy credit is claimed, and (3) proof of eligibility for the subsidy and election of COBRA for each former employee for whom a subsidy credit is claimed.
The IRS’s Q&A website for employers may be found by clicking here, and the IRS’s news release on the COBRA subsidy can be reached by clicking here.
DOL Guidance
The Department of Labor has set up a web page providing information on the COBRA subsidy contained in the Stimulus Bill. The DOL has also published a Fact Sheet (available here) that provides basic information about the subsidy. The law requires the DOL to issue model notices within 30 days of passage of the law, or about mid-March. DOL has not yet issued the notices, and further guidance is to be expected at that time.
Employers have 60 days from passage of the law to notify former employees who were involuntarily terminated on or after September 1, 2008 of the subsidy. This means that employers will have about a month to get notices out once the DOL issues model notices. Employers with group health plans subject to COBRA should begin now gathering a list of their former employees who were terminated involuntarily on or after September 1, 2008. Employers should also begin reviewing their plan documents to make the changes necessary to accommodate the subsidy and special election period requirements.
The DOL’s Fact Sheet clarifies that the subsidy is also available for employees whose employers’ group health plans are not subject to COBRA (due to having fewer than 20 employees) but are subject to state continuation laws. In South Carolina, individuals not eligible for COBRA may continue their group health insurance for up to six (6) months. Please note, however, that the special enrollment opportunity for former employees that applies to COBRA does not apply to state law continuation.
Gignilliat, Savitz & Bettis, LLP
900 Elmwood Avenue, Suite 100
Columbia, South Carolina 29201
p. 803-799-9311 f. 803-254-6951
firm@gsblaw.net Contact Us
900 Elmwood Avenue, Suite 100
Columbia, South Carolina 29201
p. 803-799-9311 f. 803-254-6951
firm@gsblaw.net Contact Us