The COBRA subsidy in the Economic Stimulus Plan (ARRA), will be available to “Assistance Eligible Individuals.” To qualify, the employee must satisfy two requirements. First, the employee must have been involuntarily terminated for reasons other than gross misconduct between September 1, 2008, and December 31, 2009. Second, the employee must have either (a) declined COBRA; or (b) elected COBRA but dropped off for a reason that would not have disqualified him for coverage (for example, inability to pay the premiums).
Assistance Eligible Individuals who were not covered by COBRA on the date of the enactment of ARRA must receive a notice of their right to elect COBRA by April 18, 2009. If they do elect coverage, the coverage and the subsidy will be effective March 1, 2009. The subsidy is for 65% of the COBRA premium.
For those individuals who are already on COBRA, employers have 60 days to effectuate the COBRA subsidy. If the Assistance Eligible Individuals pay the full premium for March and April 2009 coverage, the employer can either give them a credit for the subsidy against future premiums or refund the subsidy to them. Individuals on COBRA must also receive notice of the subsidy by April 18, 2009. The United States Department of Labor (DOL), was directed in ARRA to produce a model notice for the subsidy.
The subsidy is available for nine months or until the end of the COBRA coverage period, if sooner. It will not otherwise extend the COBRA coverage period. Those whose employment terminates involuntarily before December 31, 2009, will be entitled to the subsidy, which means that the subsidy will be provided through September 2010. The subsidy is phased out for single individuals with adjusted gross income between $125,000 and $145,000, and $250,000 to $290,000 for those filing joint returns. The COBRA subsidy is otherwise not taxable to the recipients. The employer is reimbursed for the subsidy by taking a credit against its payroll tax deposit obligation and will be reported on the revised Form 941. If the COBRA subsidy amount exceeds the employer’s payroll tax obligation, the employer will receive a refund from the IRS.
The government information being issued to assist employers and employees in administering the subsidy is being posted on the Internet. The DOL and the IRS both have posted documents to guide employers through the administration of the new subsidy. (See the DOL’s “COBRA Continuation Coverage Assistance Under The American Recovery and Reinvestment Act of 2009” with links to a COBRA Premium Fact Sheet and COBRA FAQs, and the IRS’s “COBRA: Answers for Employers”).
This post was written by Guest Blogger, Timothy P. Snyder, Esq., Chair of the Tax/Trusts & Estates and Benefits Section at Young Conaway. Maribeth L. Minella has also provided helpful commentary on the Stimulus Package. Her previous posts include: